Outsurance Life has proposed that long-term insurers that provide risk products should be excluded as accountable institutions, saying the increased cost of compliance was not proportionate to the low risk these products posed in the context of money laundering and terrorism financing.
In a presentation to the National Assembly’s Standing Committee on Finance (Scof), it submitted that the definition of a long-term insurer in Schedule 1 of the Financial Intelligence Centre Act (Fica) should be amended in line with the definition contained in the original draft amendments to the schedules published in June 2020.
On Tuesday, Scof held a public hearing on the proposed amendments to the Act’s three schedules. In addition to Out Life, the committee heard submissions from the South African Institute of Chartered Accountants and the Minerals Council South Africa.
Schedule 1 lists the individuals and entities that are regarded as accountable institutions in terms of Fica. In terms of the proposed amendments published this year, accountable institutions will include a person who carries on a life insurance business as defined in the Insurance Act of 2017 but exclude reinsurance business as defined in that Act.
Read: MPs insist on due process for Fica amendments aimed at avoiding grey-listing
The proposed amendment published in 2020 was more restrictive in its scope. A long-term insurer was defined as a person who carries on life insurance business in the “life annuities” class, “individual investments” class or “income drawdown” class as described in Table 1 of Schedule 2 to the Insurance Act of 2017, or provides rider benefits, as defined in that Act, relating to these classes, but excludes reinsurance business as defined in that Act.
In other words, only long-term insurers that provided products with an investment component would be regarded as accountable institutions.
Out Life said the 2020 proposed amendments made sense in light of the inherently low risk of risk products being used to launder money.
The insurer drew attention to some of the features of its funeral and underwritten life insurance products that, in its view, showed that risk products offered by long-term insurers do not pose a high risk that requires them to be subject to measures designed to combat money laundering and terrorism financing.
For example, its funeral product has a low-value monthly premium (no lump sums); valid claims were paid via EFT into a South African bank account, with pay-outs capped at R100 000; and customer due diligence documents were obtained from the beneficiary and the policyholder before payments were made.
Out Life said risk products should not be subject to the same compliance provisions as banking products that have the ability to transact internationally, or investment products that require upfront payments, or could be abused for laundering money.
It said risk products did not allow for the movement of funds through complex channels.
The increased cost of compliance, particularly where third-party vendors were involved, was not proportionate to the risk. Increased compliance costs result in higher product costs, which were passed on the consumer, Out Life said.
It said higher costs could make products unaffordable for low-income consumers, which ran contrary to the government’s policy of promoting financial inclusion.
Out Life said if long-term insurers that provided risk products were excluded as accountable institutions, they would still have to comply with section 29 of Fica, which requires the reporting of suspicious transactions.
