Financial Crime World

Enhancing Due Diligence Measures: A New Requirement for Indian Insurance Firms

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have issued new guidelines requiring insurance firms in India to enhance their due diligence measures to combat money laundering and terrorist financing.

Background

The growing concern over the misuse of insurance products for illegal purposes has led to the issuance of these guidelines. Insurance firms are now required to conduct enhanced due diligence on high-risk customers and transactions to prevent such activities.

Key Requirements

  • Conduct enhanced due diligence on high-risk customers and transactions, including:
    • Verifying client identity using Aadhaar subject to consent
    • Examining ownership and financial position
    • Conducting independent enquiries on customer details
  • Increase monitoring of business relationships with clients, particularly in cases where there is suspicion of money laundering or terrorist financing
  • File Suspicious Transaction Reports (STRs) with the Financial Intelligence Unit-India (FIU-IND) if necessary
  • Simplified Due Diligence (SDD) measures will be applied for individual policies with an aggregate premium not exceeding Rs 10,000 per annum
  • Risk categorization based on parameters such as customer identity, social/financial status, nature of business activity, and information about clients’ businesses and locations
  • Verify client details through online services offered by issuing authorities

Additional Requirements

  • Share Know Your Customer (KYC) information with the Central KYC Registry (CKYCR), a platform established by the government to maintain a central database of customer information
  • Conduct enhanced due diligence on high-risk customers and transactions as directed by the RBI

Timeline

The new guidelines come into effect from [insert date] and insurance firms are required to comply with them immediately. Failure to do so may result in regulatory action.

In related news, the Insurance Regulatory and Development Authority of India (IRDAI) has also issued a circular directing insurance firms to conduct enhanced due diligence on high-risk customers and transactions. Insurers are required to submit a report on their compliance with the new guidelines by [insert date].

Conclusion

The RBI and SEBI have taken this step to ensure that insurance firms have robust due diligence measures in place to detect and report suspicious transactions. By enhancing due diligence measures, insurance firms can help prevent money laundering and terrorist financing activities.