Money Laundering: Sectoral Guidance for Life Assurance, Protection, Pension and Investment Products

June 2006

This guidance, which is specific to the life assurance and life related protection, pension and investment products sector of the financial services industry, is supplemental to the main summary of JMLSG Guidance "Summary of the Revised Guidance for the UK Financial Sector of the Joint Money Laundering Steering Group (JMLSG) in the Prevention of Money Laundering" (the "Main Summary Guidance"). It should be read in conjunction with the Main Summary Guidance at all times.

1. MONEY LAUNDERING RISKS

   The products in this sector are generally considered to be low risk, providing insufficient functionality and flexibility to be a first choice of vehicle for the money launderer.

   1.1. Main Risk Drivers

   There are three main drivers of risk being:

   • Product type;
   • Customer profile; and
   • Delivery channel.

   1.2. Product Type as Primary Influence

   The primary influence on the risk assessment is the product type. The particular features of the product in question will drive the risk assessment, and thus should always be considered, and weighed in the balance, when assessing the risk attributable to any product type.

   Features that increase the risk profile include, amongst others:

   • Receipts acceptable from third parties;
   • High value or multiple receipts acceptable;
   • Cash acceptable;
   • Ease of liquidation without penalty;
   • Ability to trade on secondary market;
   • Acceptability as loan collateral.

   Features that reduce the risk profile include, amongst others:

   • Limited acceptability of third party payments;
   • Small total investment;
   • Small regular premiums;
   • Little or no investment value;
   • Linked to legitimate employment.

   Three levels that are able to be attributed to products using the criteria above are:

   • Reduced risk;
   • Intermediate risk; and
   • Enhanced risk.

   The guidance sets out the main categories of product falling within each of the risk levels. The guidance also details the relevant considerations in arriving at such risk assessment and interested firms, or firms seeking to assess similar products, should also refer to the main guidance issued by JMLSG.

   1.2.1 Reduced Risk

   This category includes protection products such as term life assurance, income protection products related to long term illness, critical illness products relating to specific illnesses and pensions products such as Group Occupational Pension Schemes, contracted in pension schemes, contracted out money purchase schemes, final salary schemes and group AVCs, and rebate only personal pension plans.

   1.2.2 Intermediate Risk

   This category includes whole of life type protection products, life assurance and endowment type savings plans, corporate group personal pensions and group stakeholder pensions, and individual pensions including income drawdown, flexible pension plans, phased retirement plans, free standing AVCs, stakeholder plans, personal pension plans (excluding SIPPs and SSASs), immediate vesting personal pensions, compulsory purchase annuities, open market options, with profits annuities and purchased life annuities.

   1.2.3 Enhanced Risk

   This category includes single premium investment bonds including with profits, guaranteed, income, investment and international offshore bonds, executive pension plans, small self-administered schemes, (SSASs) self invested personal pensions (SIPPs) and trustee investment pension plans. The categorisation of increased risk reflects the higher value premiums and the ease of access to the funds.

2. CUSTOMER DUE DILIGENCE

   2.1. Reduced Risk

   For protection products the required due diligence is normally as set out in the main part of the guidance to which this is an annex.

   However, exemptions from this requirement to identify and verify can be applied where either:

   1. there is a single premium not exceeding €2,500 or where a regular premium is payable, but where the total payable in any one calendar year does not exceed €1,000; or
   2. payment is drawn on an account in the customer's own name at a UK, EU or regulated credit institution within a comparable jurisdiction.

   For pension products in the reduced risk category there is an exemption from verifying the identity of individuals holding policies of long-term insurance business in connection with a pension scheme taken out by virtue of a person's contract of employment or occupation where there is no surrender clause and the product cannot be used as collateral for another loan.

   2.2. Intermediate Risk

   For intermediate risk products the identity of the customer should be verified according to standard procedures as set out in the main part of the guidance to which this is an annex.

   2.2.3 Monitoring

   In view of the level of manual intervention in processing business within this category, staff training is an important control to ensure that unusual business is identified and drawn to the attention of the firm's nominated officer.

   2.3. Enhanced Risk

   For enhanced risk products the identity of the customer should be verified in accordance with the standard procedure set out in the main part of the guidance to which this is an annex. Further, additional information requirements should be satisfied, again as set out in the main part of the guidance, which should include the firm satisfying itself of the source of the funds, the customer's employment and salary details and the source of the customer's wealth.

   2.3.1 Monitoring

   Ongoing monitoring should be undertaken to identify unusual or suspicious activity commensurate with the higher risk of the product.

3. RECORD KEEPING

   Where documents are used in the identification and verification process (which is considered the most likely way for financial advisers who will not have ready access to means of electronic verification) copies of such documentation should be made and retained, or, where this is not possible for any reason, full details of such documents sufficient to enable duplicates to be obtained from the issuer if necessary, should be noted and retained.

   Such documents or details of documents should be retained for a period of 5 years from the date on which the relationship terminates.