The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian general insurers fear the Government will "over-regulate a risk that doesn't exist" with proposed changes to anti-money laundering regulations.

Senior executives told Tribune Business they wanted to ensure the Minnis administration "thinks before it acts" on changes to the Financial Transactions Reporting Act, which for the first time include property and casualty underwriters in the definition of a 'financial institution'.

Anton Saunders, RoyalStar Assurance's managing director, questioned how the sector could be exploited by money launderers/terror financiers given the nature of its business.

"We have gotten from the industry the draft legislation that we will be responding to shortly with our recommendations," he told Tribune Business. "Like with everything, no one thinks before they act.

"We have to understand what is the risk for the general insurance industry from money laundering. There is no big risk in general insurance from money laundering. We have to make sure they don't over-regulate a risk that doesn't exist. That's the problem."

While criminal and terror-related proceeds could conceivably be laundered through insurance premiums on luxury real estate, automobiles and other assets, these funds could only be recovered if the underlying assets are damaged or written-off - something that would produce no gain for those behind such schemes.

Patrick Ward, Bahamas First's president and chief executive, declined to detail his company's concerns because the draft Financial Transactions Reporting Bill was still being reviewed internally.

However, he acknowledged that the legislation as crafted would impact Bahamas First's customer due diligence processes and "the amount of reporting that has to be done".

"There are several people that need to review it because of the operational impact," Mr Ward said of the Bill. "It will definitely be a change and something we have to be aware of in terms of the operational impact."

He and Mr Saunders were speaking out after Carl Bethel, the attorney general, confirmed to Tribune Business last week that the general insurance industry would be among those impacted by the Government's planned legislative response to the deficiencies identified by the Caribbean Financial Action Task Force's (CFATF) July 2017 report.

The CFATF, in its report, focused on the anti-money laundering inspections conducted by industry regulator, the Insurance Commission of the Bahamas (ICB), in 2012-2014. Out of the 10 companies inspected in 2012 and 2013, two were found to be 'poor', and another two 'very poor', in terms of compliance with regulatory requirements.

"In 2014, seven insurers were considered to be 'good' or 'acceptable', one 'poor' and one 'very poor'," the CFATF report said. "However, these ratings were seemingly contradicted by the fact that the ICB informed the assessment team that no anti-money laundering/counter terrorism financing breaches were detected in the period 2012-2015."

Mr Bethel, singling out property and casualty insurance in particular, said: "There are changes foreshadowed that might affect portions of industries that, prior to this, have not had a high focus for anti-money laundering and counter-terrorism financing.

"These areas have not been focused on," the Attorney General continued, "but internationally you block one area, someone goes to another and, more and more, general insurance is thought of as a venue for hiding or a bellwether area.

"If John, who works on the dock, goes to an insurer seeking to insure his home in the name of a company for $10 million, the insurance company being asked to provide that coverage will say: 'Something is not quite right here. I know John; he works at a conch shack on the dock. Where did he get $10 million to buy a house?' Even in the general insurance industry there are instances of money laundering and questionable cash flows."

Mr Bethel, though, conceded that the proposed Financial Transactions Reporting Bill was "very much up for discussion right now" via consultation with the insurance industry and other sectors set to be impacted by the amendments.

"It's an element of good governance," he added of the consultation. "It's bad policy to legislate without consulting the affected parties."

The fear among Bahamian property and casualty insurers, though, is that the proposed increase in compliance costs and paperwork is not justified by the 'low' risk they present in terms of vulnerability to abuse by money launderers and terror financiers.

By defining the sector as 'financial institutions' under the Bill, the subsequent increase in bureaucracy and 'red tape' will increase administrative time and expenses, the latter of which will inevitably be passed on to consumers through increases in already-high premiums.

This is a scenario familiar to many other Bahamian financial services sectors since 2000, when the Financial Transactions Reporting Act was first introduced as part of the legislative package to escape the 'blacklisting' by the CFATF's parent, the Financial Action Task Force (FATF).

Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, told Tribune Business the industry had been informed that the proposed legal changes were sparked by the CFATF's report.

He added that the BIA, which received the draft Financial Transactions Reporting Bill from the Insurance Commission of the Bahamas (ICB) on September 19, had initially been given until today - just two weeks - to provide feedback and content.

The Association subsequently requested an extension to end-October given "the notable impact" the changes will have for general insurers, with the ICB subsequently agreeing to a revised October 20 deadline.

"One thing is certain: It will impact the compliance costs for general insurers because you have a number of things you have to do," Mr Komolafe told Tribune Business.

"At a minimum you will have to have a qualified compliance officer and money laundering reporting officer. You will also have to have a risk-rated anti-money laundering and counter terror financing regime.

"This will impact the way general insurers onboard clients, ‎conduct KYC (Know Your Customer), ongoing monitoring and, by extension, their operations as a whole."

Mr Komolafe said the legislation, if enacted as is, will require property and casualty insurers to establish risk profiles for their clients based on type of product, their home address and previous history.

"They'll have to put all that in place and have transaction monitoring," he added. "These are not new for the insurance industry, but for general insurers this is a new paradigm from a compliance perspective."

Mr Komolafe said general insurance industry players would already have some of these elements in place, and added: "There seems to be a consensus in the industry that it....will have cost implications for general insurers. There is also a need for standardisation and a proper transition period.

"The BIA (and the insurance industry ‎as a whole) is committed to ensuring that the Bahamas remains a competitive and well-regulated international financial centre (IFC). We will be working with the ICB and Government in the days ahead for the best interest of our industry and nation."

The Financial Transactions Reporting Act already treats life insurers as 'financial institutions', given that the long-term nature of their business - and especially annuity products - is considered susceptible to money laundering. The threshold triggering Know Your Customer (KYC) due diligence is currently $2,500 in annual aggregate premiums.

However, Mr Komolafe said the new Bill appeared to contain "new requirements for the entire industry relating to the risk assessments, due diligence on beneficiaries and internal controls in a group of entities which have been incorporated into law".

He called for the Insurance Commission (ICB0 to provide guidelines on how the changes will work in practice, adding that "certain details have to be worked out".

"In the absence of the accompanying regulations and proposed amendments to the ICB's anti-money laundering/counter terror financing guidelines, it is difficult to fully comment on the Bill or assess its full impact," the BIA chairman said.

"The devil is in the details, and we will have to review these documents to determine exactly how this will be implemented or work in reality."

Mr Komolafe said the BIA's legislation committee was reviewing the Bill and compiling feedback, and he called for the Government and financial services regulators to also issue the 2000 legislation so the industry could compare the provisions in each and identify "gaps".