On 25 August 2022, the South African Prudential Authority (PA), acting as the supervisory body for life insurers in terms of section 45 of the Financial Intelligence Centre Act, 38 of 2001 (FICA), published a proposed directive in terms of section 43A of FICA (Proposed Directive). In terms of the Proposed Directive, life insurers will be required to conduct customer due diligence (CDD) measures in respect of the beneficiaries of life insurance policies, and to incorporate the beneficiaries as a risk factor when determining the overall money laundering and terrorist financing (ML/TF) risk rating of a client.
Life insurers and other interested parties are invited to submit comments on the Proposed Directive by no later than 8 September 2022.
The proposed measures to be imposed on life insurers are as follows:
- In addition to the existing CDD measures required in terms of FICA, as soon as a beneficiary is identified, designated or amended by a client, life insurers must obtain particulars of the beneficiary.
- Where a beneficiary is a named natural person, legal person or legal arrangement a ML/TF risk assessment and corresponding CDD measures must be conducted in accordance with FICA, at the time of the pay-out, and before funds are transferred to the beneficiary.
- Where the beneficiary is designated by characteristics, by class or by other means, CDD measures should be conducted by obtaining sufficient information concerning the beneficiary to satisfy the life insurer that it will be able to establish and verify the identity of the beneficiary, in accordance with FICA, at the time of the claim pay-out, and before funds are transferred to the beneficiary.
- Beneficiaries of life insurance policies must be included as a factor in the overall risk assessment of clients, and determining whether amplified CDD measures would then apply to their client as a consequence.
- If it is determined that a beneficiary who is a legal person or a legal arrangement presents a higher ML/TF risk, the life insurer must undertake enhanced CDD measures on the beneficiary at the time of claim pay-out, and before funds are transferred to the beneficiary.
- The life insurer must take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary, is a domestic prominent influential person or foreign public prominent official. Where such higher risks are identified, life insurers should inform their senior management prior to the inception of the policy, to conduct enhanced scrutiny on the business relationship with the client, and to consider making a suspicious transaction report to the Financial Intelligence Centre established in terms of FICA.
- The life insurer must take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary is not a listed person pursuant to a targeted financial sanctions list as envisaged in sections 28A and 26B of FICA.
Once finalised, the Proposed Directive will become effective from the date of publication on the South African Reserve Bank’s website.
It is proposed that, once finalised and published, the Proposed Directive must be made available to the supervised institution’s external auditors, and that an acknowledgment of receipt completed by both the chief executive officer of the institution and its external auditors must be returned to the PA.
All life insurers and other interested parties have been invited to submit comments for consideration to PA-Insurancedirective@resbank.co.za by no later than 10 business days from the date of publication of the Proposed Directive, which period expires on 8 September 2022. The comments received from life insurers and other interested parties may be published on the website of the PA unless parties request anonymity.