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Financial Crime: Central Bank of Bahrain Issues New Rulebook Volume 3: Insurance
The Central Bank of Bahrain has issued a new rulebook volume 3: insurance, outlining measures for insurance licensees to manage and mitigate financial crime risks. The rulebook emphasizes the importance of a risk-based approach in identifying and assessing money laundering (ML), terrorist financing (TF), and proliferation financing (PF) risks.
Risk Assessment: A Key Component
The rulebook requires insurance licensees to conduct thorough risk assessments to identify potential ML/TF/PF risks. This includes:
- Assessing country/geographic risk
- Assessing customer/investor risk
- Assessing product/service/transactions risk
- Assessing distribution channel risk
Country/Geographic Risk
The rulebook highlights the importance of considering country/geographic area risk as an indicator of potential ML/TF/PF risks. Factors that may indicate a higher risk include:
- Countries with inadequate anti-money laundering (AML) and combating financing of terrorism (CFT) systems
- Countries that provide funding or support for terrorist activities
- Countries with significant levels of corruption or organized crime
Customer/Investor Risk
The rulebook identifies categories of customers that may indicate a higher risk, including:
- Non-resident customers
- Legal persons or arrangements with nominee shareholders or shares in bearer form
- Businesses that are cash-intensive
- Companies with unusual ownership structures
- Customers sanctioned by national competent authorities for non-compliance with AML/CFT/CPF regimes
- Politically exposed persons (PEPs)
Product/Service/Transactions Risk
The rulebook emphasizes the need to assess product/service/transactions risk, including:
- Products that inherently provide more anonymity, such as cash-based transactions or transactions conducted through complex layers of intermediaries
- Quantitative and qualitative information obtained from internal and external sources
Distribution Channel Risk
The rulebook requires insurance licensees to assess distribution channel risk, including:
- The extent to which they deal directly with customers
- Their reliance on third parties to conduct customer due diligence (CDD)
Conclusion
The new rulebook volume 3: insurance emphasizes the importance of a risk-based approach in managing and mitigating financial crime risks. Insurance licensees must conduct thorough risk assessments to identify potential ML/TF/PF risks and implement policies, controls, and procedures to manage and mitigate these risks.