Transactions that aren’t as vulnerable to money launderers should be subject to less stringent due diligence measures, argues the Canadian Life and Health Insurance Association.
Appearing Thursday before the Senate Standing Committee on Banking, Trade and Commerce to testify on its review of anti-money laundering legislation, Frank Swedlove, president of the CLHIA, stressed the importance of a risk-based approach to anti-money laundering requirements, and called for policymakers to allow firms to follow less stringent procedures in cases where the risks are judged to be low.
“Measures to prevent and mitigate money laundering and terrorist financing must be commensurate with the risks identified. This approach is meant to ensure efficient allocation of resources and minimize the compliance burden,” he said.
So, in areas where the risks are higher, firms should undertake enhanced customer due diligence measures, and, where the risks are lower, the requirements may be simpler and less costly, he suggested.
“Insurance overall is clearly less risky than banking,” he said. “Unlike banks, insurers do not accept cash and are therefore not involved in the ‘placement stage’ of money laundering.”
Moreover, certain insurance products may be less risky than others, he noted. “Some products are simply not suited as a vehicle for money laundering such as: term life insurance and critical illness insurance. For products such as these, one really questions the need for any AML review,” he said.
For other products, a risk-based approach should apply, Swedlove stressed. For example, a longstanding customer buying a life annuity through a captive life insurance agent would be considered lower risk, he said. Whereas, a new customer purchasing the same product via telemarketing would represent a higher risk situation. Allowing the firm to follow simplified measures in the lower risk situation would minimize the compliance burden on the insurer, he noted.
There are a number of ways of simplifying the rules in lower risk situations, he said. For example, he suggested companies could have the flexibility to verify the identity of customers after establishing a business relationship, they could be allowed to reduce the degree of ongoing monitoring and scrutinizing of transactions, and, relieved from seeking more information on the purpose of a transaction.
The CLHIA said that the existing anti-money laundering rules, and the Finance department’s consultation paper, don’t address the prospect of simplified consumer due diligence measures in lower risk cases. “In such circumstances, and provided there has been an adequate analysis of the risk by the financial institution, it would be reasonable for Canada to allow its financial institutions to apply simplified consumer due diligence measures,” Swedlove said.
He noted that it’s expected that many countries will allow their financial institutions to apply simplified measures when assessing risks under the internationally-agreed risk-based approach. “Hopefully, Canada will do the same,” he concluded.