Anti-Money Laundering, Counter-Terrorist Financing and Fraud Prevention
Anti-Money Laundering, Counter-Terrorist Financing and Fraud Prevention tests the controls insurers and intermediaries must apply, and the fraud red flags examiners like to set in scenarios.
AML/CFT framework
- Risk-based approach: assess customer, product, channel and geography risk, then apply controls proportionate to that risk.
- Customer due diligence: identify the customer, verify identity with reliable documents, identify the beneficial owner, and understand the purpose and intended nature of the relationship.
- Enhanced due diligence for politically exposed persons, high-risk jurisdictions, complex structures and unusual transactions. Simplified measures only where risk is genuinely low.
- Ongoing monitoring: keep due diligence current, scrutinise transactions against the profile and review high-risk relationships more often.
- Record keeping for the statutory period, commonly five years after the relationship ends, and training for staff.
- Suspicious transaction reports go to the financial intelligence unit; tipping off the customer is prohibited. A nominated MLRO handles internal escalation.
Insurance-specific risks
- Single-premium life and investment policies, early surrender at a loss, third-party premium payments, overpayment with a refund request, assignment to unrelated parties, and cash or unusual payment channels.
- Fraud types: application fraud (false details), claims fraud (staged, exaggerated, inflated), internal fraud, and intermediary fraud such as premium diversion.
Worked example
A customer buys a 50,000 single-premium policy, pays from an unrelated company account, then requests surrender after two months despite a large penalty. Each feature is a red flag: third-party funding, early surrender and disregard of cost. The insurer should verify source of funds and wealth, identify the beneficial owner, escalate to the MLRO and file a suspicious transaction report if suspicion remains. It must not tell the customer a report was made.
Traps
Assuming AML only concerns banks. Tipping off. Equating a large transaction with automatic suspicion. Ignoring fraud indicators because the paperwork is complete.