China tightens its anti-money laundering rules

Nov 03, 2011 12:00 AM

by Mary Thomson and Mitchell Dudek

China's new Administrative Measures on Anti-Money Laundering in the Insurance Business (Administrative Measures) represent a step forward in efforts to clamp down on money laundering in the country's insurance industry.
However, the effectiveness of the new, more rigid requirements will depend on how effectively they are enforced.

The Administrative Measures, which were issued by the China Insurance Regulatory Commission (CIRC) and came into effect on October 1, 2011, reiterate some aspects of previous CIRC anti-money laundering notices. For example, the Administrative Measures reiterate that investors who apply to establish insurance companies or insurance asset management companies must document the sources of their funding to show that they are legitimate.
The Administrative Measures also reiterate, in the case of a share transfer or capital increase, that insurance companies or insurance asset management companies must ensure that the source of funds to be used by the investors is legitimate.

Following are the main new requirements contained in the Administrative Measures:
1.         Client Information and Transaction Records:
Insurance companies, insurance asset management companies, insurance agents and brokers must ensure that clients take out insurance policies under their real names, that clients keep complete and authentic information and transaction records, and that the flow of funds for insurance premiums is traceable.

2.    Training:
Training of insurance company staff must cover the following:
i) anti-money laundering laws and regulatory rules;
ii) anti-money laundering internal controls;
iii) anti-money laundering requirements corresponding to the individual's duties; and
iv) other knowledge and techniques required to ensure the effectiveness of anti-money laundering procedures.
The Administrative Measures require that anti-money laundering training be weighed in evaluating the appointment of directors, supervisors and senior officials of insurance companies and insurance asset management companies. Before assuming such roles, directors, supervisors and senior officials must sign a commitment letter undertaking to fulfil their anti-money laundering obligations.

3.         Internal Control Systems:
The Administrative Measures require insurance companies and insurance asset management companies to establish sound anti-money laundering internal control systems comprising the following:

  • Client identification,
  • Retention of client information and transaction records,
  • Reporting of large-sum transactions and suspicious transactions,
  • Anti-money laundering training and propaganda,
  • Anti-money laundering internal auditing,
  • Emergency plans for serious cases of suspected money laundering,
  • Cooperation with inspections and administrative or criminal investigations,
  • Confidentiality of information arising from anti-money laundering efforts.

4.         Anti-Money Laundering Provisions:
Agreements between insurance companies and insurance agents and brokers must cover the following anti-money laundering provisions:

  • Insurance agents and brokers must identify the identity of clients in compliance with anti-money laundering obligations.
  • Insurance companies must have prompt access to client information and, when necessary, insurance agents and brokers must provide insurance companies with clients' current identification cards or other identifying documents.
  • Insurance companies must give agents and brokers proper training and other necessary assistance with respect to client identification.

The Administrative Measures stipulate that insurance companies, as well as insurance agents and brokers, may be held liable for failure to undertake their respective obligations with regard to client identification.

On paper, the CIRC's new and more rigid anti-money laundering requirements for insurance entities are a solid step forward for China's insurance business.
However, it remains to be seen how rigidly the CIRC will enforce the new rules.

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