Brokers, how to save time on your mandatory AML/CFT controls?

The fight against money laundering and the financing of terrorism, or AML/CFT controls, is a crucial issue for your brokerage business

save time on AML/CFT controls

The fight against money laundering and terrorist financing is rarely the first topic of conversation at your dinner parties. But it is an unavoidable topic for the viability of your brokerage business.

"Inevitable", because it is a lawful obligation to begin with. Resulting from several successive European directives, the AML/CFT obligations apply on a European and international scale. So even if your core business is selling insurance to protect customers, you are still responsible for the legality of financial transactions as an intermediary broker.

To put it simply, as soon as you are registered with the ORIAS and the sale of insurance is your main activity, you are concerned by the AML/CFT regulation. (cf: article L. 561-2 of the Monetary and Financial Code)

To be exempted, you must either operate under the responsibility of a principal or have an insurance activity representing less than 5% of your total turnover and less than 50 000€. Otherwise, you are indeed subject to the obligations related to the LCB-FT. (To consult all the conditions, click here)

Beyond the fact that it is mandatory, managing your AML/CFT compliance is essential for the economic viability of your activity. Indeed, in case of failure, the penalties, including fines, can rise to 10% of the turnover. Some players in the insurance world have already paid the price.

The case of MMA is often cited, as it was fined 4 million euros in 2021 by the ACPR. The reason? A defective AML/CFT monitoring process.

Between the financial and reputational repercussions, things can escalate very quickly.

Finally, from a less procedural point of view, these are also important risks because behind all money laundering, there is a crime or the financing of a terrorist act. In reality, we’re all concerned, as consumers, but also as citizens.

And it is more widespread than one would think. Europol estimates that money laundering amounts to 2,129 billion dollars, or 3% of the world's GDP each year. (Source: Le Monde) This is a fundamental trend that has been greatly accentuated by the health crisis and events such as the war in Ukraine.

So what are my AML/CFT obligations?

As brokers whose main activity is the distribution of insurance, your obligations are the following:

  1. A good understanding of the risks is essential to the implementation of due diligence obligations;
  2. All brokers must have an appropriate organization, including AML/CFT training, the appointment of an AML/CFT manager and an official Tracfin correspondent;
  3. Brokers' attention is drawn to some recent changes in the area of customer knowledge, for which they play an essential role;
  4. A system for monitoring transactions is mandatory, even in the case of low risk;
  5. Reporting suspicions to the insurer does not exempt the broker from reporting to Tracfin;
  6. Brokers, whether or not they receive funds from clients, are required to implement the measures for freezing assets and prohibiting the provision of economic resources;
  7. Brokers must have an appropriate internal control system.

For an exhaustive list of the conditions, we invite you to consult this ACPR note summarizing the remaining information.

So how can I optimize my AML/CFT management?

If we start at the beginning, gaining efficiency requires the implementation of processes. This means setting up an organization and a procedure dedicated to the handling of AML/CFT matters and making it known to your employees.

To do this, as with any project, you must start by appointing an AML/CFT manager and a Tracfin correspondent. Determining a project leader will allow you to have an ambassador who can lead the matter internally and facilitate employee training. That is one of the 4 quick hacks to address your company's compliance quickly.

Why train your teammates? Because, remember, the challenge is to prevent any false step that would jeopardize your business and profitability in case of a fine.

To ensure that these problems are addressed at scale, you need to make all your teams aware of the weak signals that could hide fraud.

Just as your anti-phishing training taught you to be wary of a misspelled URL, the absence of certain supporting documents in the processing of a file should instantly raise your suspicions.

This need to get the right credentials, for example, applies to both purely monetary transactions and physical assets. Indeed, terrorist financing can take many forms.

For instance, let's imagine you are notified of a fleet of ten vehicles for which no supporting documents was submitted. This leaves you unable to certify the model, age and value of the vehicle. Your Tracfin declarant must immediately report this to the competent contacts at your insurer and to Tracfin.

Another example could be that you spot a mismatch between the economic profile of the client and the value of his assets. Here is an example mentioned by the ACPR...

Imagine a construction company with 7 car contracts (including 3 luxury vehicles less than 2 years old). The value of the insured vehicles (all risks, private and professional use) amounts to approximately 300k€. No information on how the vehicles are financed is submitted to you. But on the other hand, you are reported an income between 50k€ and 75k€. 2 possibilities: Either the price of vehicles has dramatically dropped and you have not been warned, or there is an inconsistency.

These alert criteria constitute a sufficient anomaly to obligate you to file a suspicious transaction report with your insurer and Tracfin. For more concrete examples of fraud typologies, we invite you to consult this ACPR presentation on the matter, starting on p.55 for Non-Life cases.

This was on the prevention-side. But there is another angle to optimize your AML/CFT management: the working time of your employees.

Few are aware that the administrative burden linked to the management of AML/CFT fraud amounts to between 111 and 154 hours per year per employee, i.e. between 13 and 20 man-days.

Please note that we are only talking about administrative management, excluding the time allocated to the treatment of alerts that have occurred. This workload represents nearly 8.5% of any employee's working time, or 1.25 minutes per 10 minutes. Time that would be better spent serving your customers or identifying growth opportunities.

If you add to that the cost of investigations into asset freeze alerts, the cost can quickly skyrocket. Remember that the ACPR requires a verification that none of your beneficiaries are part of the asset freeze list published by the General Treasury Department before any compensation payout. In this case, the most common option remains for your employees to manually process claims one-by-one through the Direction Générale du Trésor website to make sure that your beneficiary is not on that list.

Otherwise, solutions like Seyna AML allow you to automate your 1st level AML/CFT controls, that is to say 80% of your procedures.

In case of an alert, the tool has all the necessary functionalities to allow your teams to treat the file in unrivaled times and instantly declare your suspicions to the relevant parties, in one click.

Interested? Let's talk !

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