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Insurance Chair Fears Regulatory 'Overshoot'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers remain concerned that proposed anti-money laundering reforms risk "overshooting and putting us at a competitive disadvantage as a jurisdiction".

Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, told Tribune Business that plans to define property and casualty (general) insurers as financial institutions under the Financial Transactions Reporting Bill appeared inconsistent with international best practices.

Speaking after the BIA and its members met attorney general, Carl Bethel QC, on this and other issues, Mr Komolafe said a benchmarking exercise conducted by the industry showed that the Bahamas was going further than regional counterparts such as Jamaica and the Cayman Islands.

He explained that Jamaica's 2015 National Risk Assessment on Money Laundering and Terrorism Financing recommended removing general insurers from the list of designated financial institutions in its laws, with the Cayman Islands taking the same approach.

"We have no issue with compliance or international compliance, maintaining our reputation as an international financial centre (IFC) of choice," Mr Komolafe told Tribune Business, "but we want to make sure it's in line with international best practices.

"The question is: Are we going to far in actually doing this, where persons who are purchasing third party insurance for their vehicle are affected? It just complicates the whole matter of purchasing insurance, and is it commensurate with the risk of purchasing that product?

"It's going to be important that, as we overhaul the financial services laws as a jurisdiction, we make sure it's cutting edge and compliant, but we cannot be overshooting and put ourselves as a competitive disadvantage as a jurisdiction."

The Government's decision to include property and casualty insurers as 'financial institutions' under the legislation was taken in response to the Caribbean Financial Action Task Force's (CFATF) assessment of the Bahamas' anti-money laundering and counter-terror financing defences that was published in July 2017.

Mr Bethel, though, in a previous interview said the Financial Transactions Reporting Bill was not set in stone, and was "very much up for discussion right now" via consultation with the insurance industry and other sectors set to be impacted by the amendments.

There has already been push back from individual property and casualty insurers, who say the nature of the industry's business means it is at no risk of being exploited by money launderers and terror financiers. They argue that the sector's inclusion in the Bill's definitions will only increase consumer costs and further undermine the 'ease of doing business'.

While criminal and terror-related proceeds could conceivably be laundered through insurance premiums on luxury real estate, automobiles and other assets, these funds could only be recovered if the underlying assets are damaged or written-off - something that would produce no gain for those behind such schemes.

And Mr Komolafe yesterday pointed out that the insurance industry had in place systems to detect fraud, should persons try to destroy their own assets to facilitate a claim.

Referring to Jamaica's stance, he said: "The argument is that whilst there is potential for general insurance premiums to be paid from the proceeds of crime, this is not considered a major source of laundering and, more importantly, does not increase the assets of the launderer(s).

"The Financial Transactions Reporting Bill, as currently drafted, will have a significant impact on the way general insurers on-board clients, ‎conduct Know Your Customer, monitor their clients' accounts on an ongoing basis and, by extension, their operations as a whole.

"The consequence of these new requirements will be an increase in the cost of doing business, and added complexity to the ease of carrying out insurance business in the Bahamas. This comes at a time when the Government is seeking to improve the ease of doing business in the country in order to make the Bahamas more competitive among the community of nations."

Mr Komolafe continued: "There are also additional administrative and attendant costs to consider for processes to address the requirements outlined in the Bill. General insurers will be especially impacted as these increased costs will come at a time when premium rates may rise due to the global catastrophes being experienced.

"We are concerned that a simultaneous increase in administrative cost and premium rates will make general insurance less affordable for Bahamians and legal residents. The absence of the accompanying regulations and proposed amendments to the anti-money laundering/counter terror financing guidelines (which would contain the important details on implementation) also make it difficult to assess the full impact of the Financial Transactions Reporting Bill on the insurance sector."

The Bahamas has form for regulatory overreach, and going further than international standards and best practices, in responding to international pressures. For example, in 2000 the Bahamas eliminated 'bearer shares' for International Business Companies (IBCs) in response to its 'blacklisting', whereas the likes of the British Virgin Islands (BVI) immobilised them and placed the burden on their registered agents.

Mr Komolafe, meanwhile, said the CFATF's Financial Action Task Force (FATF) parent, which was responsible for that 'blacklisting', only included life insurers and others involved in long-term investments in its definition of 'financial institutions'.

Suggesting that the Bahamas' own National Risk Assessment on Money Laundering and Terrorist Financing (NRA) should have been completed prior to the CFATF visit, the BIA chairman added: "A review of the recent CFATF report for the Bahamas will also reveal that there was no recommendation that general insurers should be included in the definition of 'financial institution' as the Financial Transactions Reporting Bill proposes to do.

"The results of the CFATF Mutual Evaluation have been referenced on several occasions as the reason for the proposed drastic changes to the anti-money laundering/counter terror financing regime for the general insurance sector. However, it appears (based on the CFATF report) that this was not a recommendation or consideration, and therefore not required to improve our rating as a jurisdiction.

"Rather, improvements to the existing anti-money laundering/counter terror financing regime for the (long-term) insurance sector vis-à-vis ongoing due diligence, record keeping, politically exposed persons, reliance on third parties, internal controls, higher risk countries and inclusion of money laundering/counter terror financing risks in risk-based supervision would seem to suffice based on the CFATF report."

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