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Sanctions due diligence guidance

Earlier this month, Lloyd’s published guidance to help managing agents decide their due diligence processes to manage compliance with sanctions risk.

Wed 22 Feb 2012

Lloyd’s consulted the LMA and a range of managing agents in drawing up the guidance. While it is targeted at managing agents, it is also relevant to brokers when they place business at Lloyd’s.  HM Treasury has also reviewed parts of the guidance and will link to the guidance from its web-site. 

The guidance covers financial and trade sanctions largely from the perspective of EU and UK legislation. It is published under Market bulletin Y4560 and is provided in four parts, to allow managing agents to access each part separately. These cover

  • background information,
  • due diligence and screening by method of acceptance,
  • miscellaneous compliance procedures and
  • US sanctions and other sanctions regimes.  

The bulletin also includes a summary of the main guidance and nine general principles that Lloyd’s considers should be integrated into each managing agent’s business practices. 

The guidance is not prescriptive and recognises that managing agents’ due diligence processes will vary by the class of business, method of acceptance and/or the transaction itself. It will help managing agents develop compliance procedures and benchmark their existing procedures.

Guidance is also provided on identifying risk factors and creating a framework for screening, including timing, extent, frequency and issues specific to certain lines of business.

As a general rule, due diligence/screening should be undertaken before underwriting, where possible.  If not, it should be done as soon as possible. Part 3 of the guidance covers this matter in the context of certain methods of acceptance.

Due diligence and screening must also take place at other points, particularly beforeclaims are paid. Guidance is provided on how to deal with this as part of the Claims Transformation Project.

Guidance on methods of acceptance also covers issues arising involving delegation of authority (including coverholders) and other issues specific to the subscription market. There is also commentary on the use of exclusion clauses, which, whilst encouraged, should be used proportionately and with appropriate due diligence.

While not to be considered the only source, brokers are a key source of information for due diligence and screening. They are expected to have carried out their own compliance checks and to act as a conduit for managing agents to obtain further information as necessary.

Country-specific US sanctions guidance is currently being updated on Crystal.