Financial institutions, such as banks or securities firms, have been under scrutiny for quite some time to identify potential threats, mitigate risks and maintain regulatory compliance.
Realizing that money laundering is also an issue of growing concern for other industries, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) last year announced new anti-money laundering (AML) compliance and reporting rules that went into effect in 2006. The rules mandate that certain insurance companies will soon be obliged to establish anti-money laundering programs and file required Suspicious Activity Reports (SARs) to improve transparency and cut down on financial crimes.
The primary question facing insurance institutions now is: Can this compliance program implementation happen at an acceptable pace? All insurance transactions after May 2 of this year have to be monitored for anti-money laundering detection, with the first round of audits likely to occur the following year. While not specifically required, many insurers will turn to technology for assistance–and the clock is ticking.
Many firms may be challenged with selecting, testing and implementing an effective AML monitoring system. To be successful, firms must be aware of the AML regulations, the costs of implementing and operating a solution, and the state of technology.
FinCEN’s anti-money laundering rules require insurance companies to develop written programs designed to prevent their products from being used in money laundering activities or for the financing of terrorist activities. These regulations represent the first time FinCEN has defined insurance companies as financial services providers or issued regulations regarding insurance companies. Permanent life insurance, annuity contracts and any other product with a cash value or investment feature are required to be under surveillance, while term life, group life and annuities, property-casualty, reinsurance, and health insurance are excluded.
A firm that chooses an automated monitoring solution may do so for a number of reasons, such as:
o Manual processes are labor-intensive and subject to error.
o Internal auditing is a critical component of an AML program.
o The firm’s AML policy should be applied consistently across different lines of business.
Compliance risk management software is designed to aid a firm with its regulatory compliance obligations. There are several methods to automate the job of compliance. The simplest, though not much of an improvement over manual methods, is to run exception reports against transactional data. The single largest problem with this approach is the timeliness of results from such a system. Reports that are run, for example, on a quarterly basis may only catch activity well after it has occurred. Reports run daily, on the other hand, will easily flood compliance personnel with exceptions.