Financial Crime, International Sanctions and Regulatory Risk
International Regulatory Risk at Lloyd's
The reactive nature of the insurance market to worldwide incidents and regulatory change means that Lloyd's must be vigilant to all matters that impact insurance in general and specifically Lloyd's.
The International Regulatory Risk team (IRR) monitor, track and collate information on active and pending legislation regarding financial crime, international sanctions and regulatory risk. The information collated allows IRR to give advice and guidance to market participants so they can make fully informed decisions.
IRR is also charged with investigating financial crime that could impact the Corporation and the Lloyd's market. In addition, it assesses the impact of regulatory requirements and/or legislation relating to financial crime such as fraud, bribery, money laundering, international sanctions and export control legislation in order to provide guidance to managing agents.
For further information, please contact:
IRR has an extensive network of contacts in regulatory and law enforcement organisations around the world and welcomes any information from the underwriting and compliance community regarding any issues affecting Lloyd’s.
Investigating the fraudulent misuse of the Lloyd’s name
As an internationally recognised brand, the Lloyd’s name is sometimes used in a fraudulent manner. IRR works closely with policyholders, regulators and law enforcement agencies around the world to prevent this occurring and where possible, prosecute the perpetrators.
The United Nations (UN) and European Union (EU) drive international sanctions legislation applicable to the UK which is subsequently enacted into legislation. International sanctions are used to put pressure on regimes to inter alia support democratic change, preserve or encourage human rights, prevent the proliferation of nuclear weapons, fight terrorism and to restore peace to a region. On occasion, the UK government and/or other overseas governments may act unilaterally to impose sanctions.
In the UK, sanctions legislation is administered by HM Treasury. Sanctions are generally in the form of asset freezing restrictions against identified individuals and/or companies but can also include the prohibition of certain types of trade (or all trade) with a named country.
In the US, the government imposes similar financial and trade sanctions which are administered by the Office of Foreign Assets Control (OFAC). Although atypical, some US sanctions regimes can impact upon subsidiaries of US companies as well as on US companies and individuals. For example, sanctions in relation to Cuba.
IRR produces guidance to assist managing agents in understanding the impact of UK and US sanctions legislation. Access to guidance on US sanctions by external legal counsel is posted on Crystal for managing agents to consider.
HM Treasury and OFAC maintain a list of countries, companies and individuals that are currently subject to financial and trade sanctions.
Lloyd's has produced detailed guidance for managing agents regarding the due diligence process in respect of international sanctions.
The UK Bribery Act came into force 1 July 2011. It simplifies previous legislation to enable more effective enforcement and prosecution, as well as introducing greater corporate responsibility.
The Act provides for four offences: bribing a person; being bribed; bribing a foreign public official and corporate liability for failing to prevent bribery by associated persons. ‘Associated person’ is defined broadly as any person or entity which performs services for the corporation.
The offence of corporate liability for failing to mitigate the risk of bribery is a strict liability offence and the only defence for a commercial organisation is to demonstrate that it has adequate systems in place to prevent associated persons from engaging in bribery. These offences can be triggered by illegal contact anywhere in the world.
Lloyd’s has produced guidance for managing agents on the impact of the Bribery Act and the implementation of adequate systems and controls as well as in relation to their relationships with coverholders.
Money laundering is the process used by criminals to disguise the origin and ownership of the proceeds of their criminal activity in order to avoid prosecution, conviction and confiscation. General insurance is considered to face a lower risk of money laundering than other sectors.
UK legislation imposes obligations to report any suspicious transactions to the National Crime Agency (NCA). This requires Lloyd’s market participants to have training and awareness in place for their employees.
IRR offers training and guidance to managing agents to support their anti-money laundering efforts and can assist in reporting suspicious transactions to NCA on behalf of managing agents.
The Export Control Order 2008, in part, imposes requirements on UK entities with regard to the movement of controlled military goods from an overseas country to an embargoed destination. The provision of insurance and reinsurance involved in moving these goods is subject to a licence being obtained from the UK Government, without which criminal penalties may ensue. This impacts on UK individuals and companies anywhere in the world or to persons operating in the UK.
IRR, alongside the Lloyd’s Market Association (LMA) and London International Insurance Brokers Association (LIIBA), has produced guidance and recommendations for practical solutions in complying with this legislation and has also negotiated the release of an Open General Trade Control Licence (Insurance and Reinsurance) related to UN mandated/authorised missions.
Coverholders form an integral source of business for Lloyd’s. It is therefore important that coverholders understand the risks facing the insurance industry from financial crime and increased regulatory/legislative burdens and in turn understand their obligations to mitigate those risks.
Coverholders can expect managing agents to discuss and agree proportionate procedures to address financial crime/legislative issues and to ensure compliance through contractual requirements, risk-assessments and/or audits.
Based on discussions with managing agents, coverholders are expected to have:
- Proportionate written procedures regarding anti-money laundering which should cover staff training and awareness, record keeping and recognising and reporting suspicious transactions.
- Coverholders are required to have adequate controls in place to comply with locally and UK issued sanctions.
- Coverholders must comply with the Bribery Act (as agreed with managing agents) as well as any local anti-bribery and corruption legislation as under the UK Bribery Act, a coverholder is considered to be an associated person of the managing agent and can therefore create criminal liability for the managing agent.