In order to have a uniform approach across the financial sector, Ministry of Finance (Fin Min) in consultation with various financial sector regulators has specified the procedures for determination of beneficial ownership, as under:
In September 2010, Irda had bought out a circular on the Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT)-Guidelines that required insurers to identity and verify the beneficial owner to an insurance contract. Beneficial owner means the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.
As per finance ministry guidelines, insurers, where the customer is a person other than an individual or trust, need to verify the identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest.
It has been said that where the customer is a trust, the insurance company, shall identify the beneficial owners of the customer through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15 per cent or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.
Where the customer or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.
Irda has said that the above procedures shall be applied above a premium threshold in case of insurance contracts, which would be Rs 1 lakh/policy for Key-Man insurance contracts, Rs 2 lakh/policy for partnership policies and Rs 1 lakh/policy for others (which include HUFs, Trusts).
Further, employer-employee policies in the nature of group insurance policies shall be exempt from the requirements of identification of beneficial ownership. "In cases where Employer-Employee policies are in the nature ‘Individual’ business, thresholds laid down above, as relevant to the constitution of the juridical person taking insurance contract shall apply," Irda said.
Irda added that the procedures prescribed above will have to be applied whenever the Know-Your-Customer (KYC) norms are to be carried out as per the requirement under the extant AML/CFT guidelines. Insurance companies have been advised by Irda to amend their AML/CFT policy suitably and implement the above by 1st April 2013.