Germany: BaFin provides Guidance on the German Anti-Money Laundering Act with special focus on insurance companies


Background of the Guidance

The German supervisory authority is obliged to issue guidance on how to construe and to apply the provisions of the German Anti-Money Laundering Act every once in a while, (sect. 51 subsect. 8 GwG). BaFin, being the German supervisory authority, has fulfilled its obligation by issuing the Guidance for insurance undertakings.

Obliged entities who have to fulfil their duties according to GwG are, inter alia, insurance undertakings as defined in Art. 13 no. 1 of the Solvency II Directive and branches located in Germany of such companies abroad to the extent that they offer life insurance contracts (sect. 2 subsect. 1 no. 7 lit. a) GwG) or accident insurance contracts with return of premiums covered by the Solvency II Directive (sect. 2 subsect. 1 no. 7 lit. b) GwG).

In addition, since 2017, insurance undertakings that grant loans within the meaning of sect. 1 subsect. 1 sentence 2 no. 2 of the German Banking Act (KWG) – thus monetary loans or acceptance facilities – are explicitly obligated as well (see sect. 2 subsect. 1 no. 7 lit. c) GwG).

Content of the Guidance

The new Guidance refers to the general Guidance of December 2018 and is supposed to amend and specify the General Guidance.

"Granting loans"

It, inter alia, especially explains BaFin´s view regarding what constitutes "granting loans" in the sense of sect. 2 subsect. 1 no. 7 lit. c) GwG.

BaFin lists services which do not constitute "granting loans". Generally speaking, these are benefits that are themselves part of a specific insurance benefit. These are typical insurance benefits that depend on the accidental occurrence of the insured risk in individual cases and are therefore not practicable for money laundering purposes. This comprises in particular benefits within the scope of accident and breakdown cover or criminal bond insurance.

Moreover, the acquisition of loans on the secondary market does not constitute granting of loans. This is because the granting of a loan requires a separate creation of a loan. The acquisition of an already existing loan does not constitute such a granting, but a mere assignment.

BaFin, inter alia, further mentions advance payments to the insurance undertaking´s tied agents in an amount of up to EUR 15,000 as well as loans to the company´s employees to finance the purchase of residential property. These payments are not considered to be "granting loans" in the sense of provision.

If, in contrast to this, an insurance undertaking is granting loans, this might have effect on the necessity to appoint a money laundering officer, on the scope of the risk analysis to be performed and the application of simplified due diligence requirements for certain borrowers.

Company pension schemes

Apart from this, BaFin also provides guidance on company pension schemes. For example, a life insurance contract for occupational retirement provision generally represents a low risk only and meets the requirements for the application of simplified due diligence.

Continuous update of identification data

Moreover, regarding the legal obligation to continuously update identification data, BaFin points out that a continuous update of the essential identification data is basically already guaranteed because insurance undertakings usually have continuous contact with their policyholders. As a rule, the continuous updating obligations are thus fulfilled, unless there are special circumstances that indicate a need for updating beyond this in individual cases for the insurance company. BaFin gives examples of situations in which an update of individual customer data is indicated as required.

Insurance undertakings who are obliged to comply with GwG should, therefore, take into account the Guidance issued by BaFin in order to avoid any sanctions due to non-compliance with their anti-money laundering law related obligations.