Why is Compliance Screening so Valuable to Insurers?

The United Nations (UN) and the European Union (EU) impose international sanctions, such as those to prevent money laundering and terrorist financing. These sanctions are adopted by Member countries. In addition, countries can impose national sanctions. These sanctions are grouped in sanction lists - official records of individuals, organizations, and governments that are under sanctions and with whom business should not be conducted. Sanctions and sanction lists change all the time. Furthermore, compliance regulations are being significantly tightened and it is to be expected that many more changes will follow. Insurance companies are obliged to stay on top of the ever-changing sanction lists, and that is not an easy task.

What does a compliance process include?

The compliance process starts with accepting a new (business) contact. The insurer must then answer the following three questions for themselves: Who am I doing business with? Am I able to do business with them? and Do I want to do business with them? 

After conducting an initial screening, the compliance process is not over. In fact, that’s when things really start for an insurer. Changes in sanctions lists, the PEP [Politically Exposed Person] list or at customers (at a company, for example) must be continuously monitored by an insurer to check whether a customer has unexpectedly become an unacceptable risk. In other words, insurers “know your customer.”

Why is it important to stay up to date with sanction changes?

Sanction lists or the PEP list change regularly and then the entire portfolio has to be rescreened or a company’s UBOs [Ultimate Beneficial Owners] change and the company and the relevant UBOs have to be rescreened. This also results in insurers having insufficient control over and insight into the entire compliance process. It also creates a lot more work for insurers’ employees, and that at a time of staff shortages. Additionally, the fines for non-compliance with laws and regulations are hefty. However, the reputational damage is even greater. 

In 2023, De Nederlandsche Bank, as the single regulator of the financial sector in the Netherlands, published research on compliance with sanctions regulations for financial institutions. The outcome is that there is a solid foundation but certainly also room for improvement.

Under pressure from regulators and certainly also from their own responsibility as gatekeepers for the financial sector, many insurers are increasingly investing in optimizing and automating the compliance process. Just not enough yet to be truly compliant.

Many insurers only carry out the mandatory checks when entering into a new relationship (and often also manually) and then only periodically. However, in doing so, insurers are not adequately living up to their gatekeeping function. After all, insurers must assess their clients’ risks not only promptly but continuously.

A more efficient approach means a reduced burden on insurers as well as their customers, and their staff. The question is, how?

How to optimize the compliance process?

Compliance automated solutions, such as FRISS KYC Compliance, do not take over the compliance and control obligations but support insurers to do everything as efficiently as possible and stay up to date continuously. Based on changes in the data, the sanction lists, and the PEP list, the automated compliance solution automatically indicates when additional checks are required, so your portfolio stays in order 24/7.

When choosing a compliance solution, make sure it also has a complete audit trail with which you can demonstrate to both internal and external regulators that you have the compliance process in order.

This approach not only provides you with maximum support in meeting the obligations imposed by laws and regulations, but it also allows you to protect your own reputation, those of the financial industry, and society as a whole.

In addition, automated compliance solutions enable employees to work much more efficiently so they can devote their attention to the customers and the things that really matter.