Insurers face closer scrutiny over compliance with Dutch sanctions rules

This article first appeared in insuranceday on January 18, 2017

Compliance failings prompt Dutch Central Bank to be more stringent in ensuring insurers meet requirements of Sanctions Act

The Dutch Central Bank (DNB) has investigated the compliance of insurers (both life and non-life insurers) with the Dutch Sanctions Act, which sets out the rules and regulations on international sanctions.

Recently, the DNB published its findings, which indicated there is a lack of awareness among insurers about the risks they face in the sanctions domain.

There are two types of financial sanctions: an order to freeze assets and a ban or restrictions on providing financial services. The sanctions apply to certain countries (and individuals) and are intended to prevent undesirable transactions and to combat terrorism.

Dutch and EU sanctions lists provide for specific countries (and individuals) on which sanctions apply. These lists are amended and updated from time to time. The effectiveness of national and international sanctions is largely dependent on compliance with the Sanctions Act by, among others, insurers.

Compliance with the Sanctions Act by insurers has had the DNB’s special attention since 2012, when it launched its first investigation. At the end of 2012, the DNB published the results of its investigation. Deficiencies were detected at two out of three insurers and the bank announced that it would become more stringent in ensuring compliance with the act.

In March 2016, the DNB published the results of its follow-up investigation. It concluded compliance with the act was still generally inadequate. The central bank noted a number of problems, including the fact that sanction rules and regulations were scarcely addressed in training programmes for employees, and that many non-life insurers failed to record their clients’ ultimate beneficial owners (UBOs), as a result of which screening against sanctions lists has been impossible.

In addition, it found little to no screening took place if a sanctions list was updated; and insurers only periodically updated the lists that they use for sanction screening, rather than at the time that a sanctions list was updated, which made it possible that they accepted clients which could be included in an updated sanctions list.

In August 2016, the DNB published a Q&A on the Sanctions Act for non-life insurers. The Q&A aims to clarify the obligations that non-life insurers have under the act and offer guidance for implementing measures. The Q&A also provides for a number of good practices.

The DNB has indicated that the subject of sanctions is part of the systematic risk analysis that non-life insurers have to perform.

In addition, the bank considers it good practice for non-life insurers to perform an internal audit at least every three years in respect of compliance with the Sanctions Act. This also includes non-life insurers with a perceived low-risk.

The continuous attention that DNB is paying to compliance with the Dutch sanctions rules by insurers means that insurers must have solid policies and procedures in place in order to assess whether a certain transaction is in breach of those rules.

In its ongoing scrutiny, DNB will now also focus on non-Dutch EEA branches. Because of the consistent publications from the DNB on this topic, we believe the bank will now actually impose enforcement measures if insurers or the Dutch branches of EEA insurers do not comply with the Sanctions Act.