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IRDA framing regulation to track `suspicious transactions'

Radhika Menon

Large premium payments to come under scanner

Mumbai , March 7

Insurance companies will soon have to report large premium payments - above a prescribed threshold - to the Insurance Regulatory and Development Authority (IRDA).

IRDA is formulating a regulation to curb money laundering; it is expected to be released within a fortnight.

Under this regulation, reporting of such "large payments" is to be made mandatory.

Unlike other financial institutions, insurance companies were so far not covered by any anti-money laundering regulation.

A senior IRDA official said that insurance companies would be given an illustrative list of the kind of "suspicious transactions" that would have to be reported to the Financial Intelligence Unit, an arm of the Ministry of Finance.

"We are in the process of prescribing the thresholds of transactions that would have to reported. For instance, if a non-taxpayer pays a premium of Rs 1 lakh, it would be a suspicious transaction," said the official.

Basically, large-volume transactions disproportionate to the financial profile of a person would now come under the scanner, as would policies in the name of unknown beneficiaries.

The regulator also sees life insurance policies as a more vulnerable vehicle of money laundering compared to non-life insurance.

Policyholders will now have to provide PAN numbers and income details.

All regulated entities under the Reserve Bank of India and the SEBI have already been reporting "suspicious transactions" to the Financial Intelligence Unit.

The IRDA official said that regulation would involve guidelines with respect to know your customer (KYC), detailed risk profiling, and reporting of transactions.

"The regulation will be similar to what is already prevailing in the banking sector. The intention is to help insurance companies, which might otherwise unwittingly support money laundering activities."

The IRDA is framing the anti-money laundering regulation in accordance to the code prescribed by the International Association of Insurance Supervisors, which represents the regulators and supervisors of 180 jurisdictions in more than 130 countries.

According to a report of the association, examples of the type of life insurance contracts that are "vulnerable as a vehicle for laundering money or terrorist financing are products such as unit-linked or with-profit single-premium contracts, single-premium life insurance policies that store cash value, fixes and variable annuities and second-hand endowment policies."

Insurance companies have welcomed the IRDA's move.

Mr Sandeep Batra, CFO of ICICI Prudential Life Insurance, said that the regulation was a step in the right direction. "Insurance is a long-term product. Hence, it is less susceptible to money laundering compared to other investment instruments."

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