Public Compliance Communication 48 (PCC 48), published by the FIC recently, now provides clarity on when a nominated beneficiary will also be regarded as a client, including when Client Due Diligence (CDD) has to performed.
PCC 48 focusses on certain life insurance business issues, including Customer Due Diligence and understanding of risk in relation to their client in terms of the Financial Intelligence Centre Act, 2001. This Communication is the result of all comments submitted and considered on draft PCC 108.
The PCC again reiterates that Accounting Institutions (AIs) should not, when risk rating a client during on-boarding, only take into consideration a single risk factor. The risk-based approach does not entail that all clients be assigned the same risk rating due to a single factor, such as the product purchased. Should the AI regard the life insurance policy purchased to be a low-risk product, the AI must then move on and also consider all other risk factors relating to the client such as:
|●||the type of client,|
|●||if the client is a foreign prominent public official (FPPO) or domestic prominent influential persons (DPIP) or family members or known close associates of the before mentioned.|
Once all these unique risk factors have been considered, only then can the Money Laundering and Terror Financing risk be assigned to the client. Each one of these risk factors mentioned above may also carry a different weigh, for example, the geographic location may only form 10% of the overall risk assigned to the client, with the other risk factors carrying more weight. This will be for the AI to determine and to be set-out in their Risk Management Compliance Programme.
This risk-rating of a potential client must be done as part of the on-boarding process and thus before the acceptance as a client. No funds, which includes premium payments or payments received via debit order, should be received until the risk-rating and CDD has been completed.
Where an AI offers life insurance policies, the AI would now also be required to understand the risk attached to the nominated beneficiary of the policy, who will be regarded as a client of AI upon vesting of a right in the insurance benefit. It is not the Centre’s view that CDD should be performed on the nominated beneficiary. A nomination, however, it will need to be performed once the insured event occurs, and the benefit is claimed and becomes payable.
An AI must have sufficient knowledge of the nominated beneficiary at any given time and must reassess the risk relating to its clients at various points during the business relationship. A trigger for reassessment may be the change of a nominated beneficiary on the client’s policy.
Sanction screening must be performed on the nominated beneficiary, as well as an assessment on whether the nominated beneficiary may be a foreign prominent public official or a domestic prominent influential person.
Access to a copy of a section 29 report submitted to the Centre, during an onsite inspection by a supervisory body, is also briefly discussed.
PCC 48 can be downloaded from our website.