Research by the Dutch National Bank (DNB) has indicated that insurers are not taking enough precautions to avoid infringement of the Sanction Law (SL). With European legislation on the rise, this is an issue that many insurers in Europe may be facing on the short term.
In November 2015, DNB already found that insurers and other financial institutions are experiencing difficulties in connecting their specific risk profile to the measures required to comply with the Sanction Law. From the study was concluded that the compliance level at some firms was too low due to a lack of actions that were taken to thoroughly assess customers with a high risk profile. At the same time, DNB recognized an excess of compliancy measures at some other institutions.
Based on the current studies, DNB concludes that a number of insurers have improved on complying with the SL. There are even several ‘good practices’: these are organizations that have no shortcomings with regards to the law, and from which DNB recognizes that the taken measures have been implemented adequately.
No risk analysis
Nevertheless, apart from a few exceptions, DNB announces that most insurance companies that were part of the research do not have the required level of compliance with the SL yet. This is something that applies to insurance companies across Europe. Usually, insurers do not have a risk analysis in which the customer type and activities are linked to control measures with regards to the SL.
Regulations are barely included in education and trainings. This may partly explain the lack of awareness among insurers in relation to the sanction legislation. Insurers are mainly relying on suppliers of sanction lists and on periodical screenings of the portfolio. A screening of new relations is not always taking place.
Most important bottle-necks
The most important bottle-necks are the following:
- Most non-life insurers have not registered Ultimate Beneficial Owners (UBOs). This means that these relations cannot be screened against a sanction list, which conflicts with the SL.
- Few or no screenings are taking place after updates of the sanction lists.
- Insurers update lists only periodically, and not when actual changes are made to the lists. This leads to periods in time where customers are accepted who are on a sanction list.
- Insurers often assume that other parties in the chain are taking the required measures, without checking and controlling if these parties are in fact doing so.
- Knowledge about the sanction legislation is insufficient in a large part of the industry.
The primary condition in complying with sanction legislation is that an organization has a clear overview of all relations, including structure, Ultimate Beneficial Owners (UBOs), directors and intermediaries. It is important that companies realize it is not only important to screen their relations to sanction lists, but to also proactively monitor all the activities of these relations and check if people are trying to get around the sanction lists.
CEO at FRISS Jeroen Morrenhof recognizes these findings, and indicates: “With an adequate risk assessment and screening it is possible to avoid an excess as well as a lack of compliance measures. Besides that, it is important to screen your entire portfolio on a regular basis.”