AML/CFT guidelines-Procedures for Determination of Beneficial Ownership

Attention is drawn to clause 3.1.1 (iii) of IRDA Circular reference IRDA/F&I/CIR/AML/158/09/2010 dated 24^th September 2010 on AML/CFT guidelines (the Master Circular 2010) which requires insurers to identity and verify the beneficial owner to an insurance contract.

2.  In order to have a uniform approach across the financial sector, Government of India, Ministry of Finance in consultation with various financial sector regulators has specified the procedures for determination of Beneficial Ownership, as under:

Customers other than individuals or trusts:

2.1 Where the customer is a person other than an individual or trust, the insurance company shall identify the beneficial owners of the customer and take reasonable measures to verify the identity of such persons, through the following information:

(a) The identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest.

Explanation: Controlling ownership interest means

• ownership of/entitlement to more than 25 percent of shares or capital or profits of the juridical person, where the juridical person is a company;
• ownership of/entitlement to more than 15% of the capital or profits of the juridical person where the juridical person is a partnership; or,
• ownership of/entitlement to more than 15% of the property or capital or profits of the juridical person where the juridical person is an unincorporated association or body of individuals.

(b) ln cases where there exists doubt under (a) as to whether the person with the controlling ownership interest is the beneficial owner or where no natural person exerts control through ownership interests, the identity of the natural person exercising control over the juridical person through other means.

Explanation: Control through other means can be exercised through voting rights, agreement, arrangements etc.

(c) Where no natural person is identified under (a) or (b) above, the identity of the relevant natural person who holds the position of senior managing official.

Customer which is a trust:

2.2 Where the customer is a trust, the insurance company, shall identify the beneficial owners of the customer and take reasonable measures to verify the identity of such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

Exemption in case of listed companies:

2.3 Where the customer or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.

3.  Applicability and Implementation:

3.1 Owing to the fact that the concerns arising out of Beneficial Owners in the Insurance contracts are largely mitigated by the principle of insurable interest and strict underwriting requirements, but keeping up the requirements of uniform procedures required to be laid down in the financial sector, under the PML Rules, the above procedures shall be applied above a premium threshold in case of insurance contracts, as under:

• Key-Man insurance contracts: 1 lakh / policy
• Partnership Policies:2 lakh /policy
• Others (which include HUFs, Trusts) : 1 lakh/policy

3.2 Employer-employee policies in the nature of group insurance policies shall be exempt from the requirements of identification of beneficial ownership.  In cases where Employer-Employee policies are in the nature Individual business, thresholds laid down above, as relevant to the constitution of the juridical person taking insurance contract shall apply.

3.3 Documents required to be collected in each case shall be driven by the underwriting considerations in general and AML/CFT guidelines in particular. (Reference is drawn to the Master Circular 2010 and the IRDA Circular IRDA/F&I/CIR/AML/180/11/2010 dated 12^th November 2010.)

3.4 The procedures prescribed above will have to be applied whenever the KYC norms are to be carried out as per the requirement under the extant AML/CFT guidelines (Ref: 3.1.2 of the Master Circular 2010).

3.5 Insurance companies are advised to amend their AML/CFT policy suitably and implement the above by 1^st April 2013.

(R. K. Nair)

Member (F&I)