global insurance management

Financial Crime (Nov '13)


Nov 27 2013

Financial Crime - Update

Reason for issue:         Update and reminder.

Action required:           Read and ensure your CPD record in your Training Log is updated.

This paper is the second in a series that is intended to support the ongoing training and competence of all staff in relation to their knowledge and understanding of how we look to combat financial crime.

The first paper is a general overview whereas this one is more topic-specific and just to recap from that first paper:

The Financial Conduct Authority (FCA) defines Financial Crime as any kind of criminal conduct relating to money or to financial services or markets, including any offence involving:

  1. fraud or dishonesty; or
  2. misconduct in, or misuse of information relating to, a financial market; or
  3. handling the proceeds of crime; or
  4. the financing of terrorism;

In accordance with FCA Rules, we are required to ensure that we have policies and procedures in place that shows how our Directors, managers and staff understand what is required of them to prevent the firm being used for any aspect of financial crime. 

So the areas covered by our obligations to prevent Financial Crime are as follows:

  • Fraud;
  • Bribery and Corruption;
  • Money Laundering;
  • Data Security;
  • Financial Sanctions;
  • Market Abuse; Suspicious Transaction reporting.

So, let’s start with something that is easy to deal with as most of us will probably not be in a position to become involved in it.

Market Abuse

Market abuse is improper activity or behaviour that could have a detrimental effect on financial markets.  Seven such types of behaviour have been identified, as follows:

  1. Insider dealing:
  • when an insider deals, or tries to deal, on the basis of inside information. Improper disclosure and misuse of information are kinds of insider dealing.
  1. Improper disclosure:
  • where an insider improperly discloses inside information to another person.
  1. Misuse of information
  • behaviour based on information that is not generally available but would affect an investor’s decision about the terms on which to deal.
  1. Manipulating transactions
  • trading, or placing orders to trade, that gives a false or misleading impression of the supply of, or demand for, one or more investments, raising the price of the investment to an abnormal or artificial level.
  1. Manipulating devices
  • trading, or placing orders to trade, which employs fictitious devices or any other form of deception or contrivance.
  1. Dissemination
  • giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading.
  1. Distortion and misleading behaviour
  • behaviour that gives a false or misleading impression of either the supply of, or demand for, an investment; or behaviour that otherwise distorts the market in an investment.

Firms arranging transactions in certain financial instruments are required to report suspicious transactions to the FCA without delay. A suspicious transaction is one in which there are reasonable grounds to suspect it might constitute market abuse.

Our business does not participate in the financial markets and so will not be required to undertake measures aimed at preventing market abuse. 

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The next area is something else that has a very small chance to affect our business but we do have to ensure that we have something in place to reduce any risks attached to it.

Financial Sanctions

The UK financial sanctions regime helps in delivering the Government’s foreign policy objectives. It is also used by the Government to prevent and suppress the financing of terrorism and terrorist acts.

There is a chance, however small, that insurance intermediaries may be at risk of dealing with individuals or organisations covered by financial sanctions.  Firms and their personnel have both a legal and regulatory duty to comply with financial sanctions regimes otherwise they risk fines and imprisonment for an individual found guilty of an offence.

Financial services firms must not conduct business with any individual or firm listed in HM Treasury’s financial sanctions list.

The Sanctions and Illicit Finance Team in the Treasury is responsible for carrying out the Treasury's responsibilities on financial sanctions, as part of their overall function.

So, to find out if a client or even a prospective client is on the financial sanctions list, we have to search it.  The FCA considers it good practice for firms to check the following against the HM Treasury list:

  • all new customers
  • existing clients;
  • any changes to client details; and
  • the Directors, Partners etc of those firms and organisations that we do business with

Searching the list may produce a “hit” – a name match where further investigation of the individual’s details is then required to establish if there is a target match.  If so, we must contact the Sanctions and Illicit Finance Team at HM Treasury for instruction on how to proceed.

Helpfully, the Treasury has issued some general licences, two of which may assist insurance firms, intermediaries and brokers.  One licence allows firms to issue an insurance policy to a designated person but then it must be reported without delay; the other allows insurers to make certain goods and services temporarily available to a designated person in connection with a valid claim.  But any target match must still be reported once identified.

A firm is guilty of an offence if at any time since relevant financial sanctions became effective, it knew or suspected that a customer, person or organisation with whom the firm has had business dealings:

  • was a target of financial sanctions, or
  • was a person acting on behalf of a financial sanctions target, or
  • had committed an offence under financial sanctions legislation and
  • it does not disclose to the Treasury the information on which the knowledge or suspicion is based as soon as is reasonably practicable after that information comes to its attention.

Where any firm is guilty of an offence and that offence is proved to have been committed with the knowledge of anyone within the firm, its ARs/IARs or outsourced service providers, then that individual (and the firm itself) is considered to be guilty and will be treated as such.

Generally, any person guilty of an offence under the relevant legislation may be fined and/or imprisoned for up to seven years (depending on the particular legislation involved).

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