Welcome to the November edition of REG Reviews. This month we look at the NatWest money laundering case, growing concerns for the Insurance industry and a “Ghost” broker jailed in Cambridge. Read this along with our usual update from REG and the REG Tech sector.
Main News Stories
NatWest pleads guilty for failing to prevent alleged money laundering
National Westminster Bank Plc (NatWest) pleads guilty at Westminster Magistrates’ Court to criminal charges brought by the FCA under the Money Laundering Regulations 2007. These regulations require certain firms, including those regulated by the FCA, to ensure they have adequate anti-money laundering systems and controls to prevent money laundering.
The FCA alleged that NatWest had failed to monitor suspect activity by Fowler Oldfield, a Bradford-based jewellery wholesaler, which deposited £365m over a five-year period, including £264m in cash. The 122-year-old gold dealer was shut down after a police investigation in 2016 into what was alleged to be “an extremely sophisticated” money laundering operation.
The bank could expect a “very large” fine of more than £170m, possibly multiplied by up to 200 per cent. The exact level of the fine will be determined by a judge when the bank is sentenced at Southwark Crown Court in early December.
Over 3,591 DB pension advice letters sent to customers potentially entitled to compensation
Letters have been sent to customers of firms in liquidation where past business reviews have identified that the firm has given unsuitable advice to some customers. This is part of the FCA’s work to support consumers who have received unsuitable DB transfer advice to receive appropriate compensation. All firms providing DB pension transfer advice should follow the FCA’s Finalised Guidance, so that they understand the processes they need to put in place to give suitable advice. The FCA will continue to monitor this market through regular data collection and its ongoing programme of supervisory work.
Harbour Underwriting partners up with Scotland's top broker to provide after-the-event insurance to Scottish law firms
Harbour underwriting has partnered up with one of Scotland’s top brokers GS Group to provide after-the-event (ATE) insurance to Scottish law firms. Both firms have stated they recognise the need for ATE insurance especially due to post-Brexit and post-pandemic commercial disputes. Recently, solicitors’ professional obligations in England and Wales have changed, now advising the client about the availability of after-the-event insurance. Furthermore, strict rules apply when a solicitor provides a client with recommendations for an insurance contract. It is suggested solicitors only advise this if they have analysed several insurance contracts available on the market.
REG releases Anti Money Laundering (AML) whitepaper
During market research carried out by REG Technologies we found that over 50% of firms don’t have an automated processes to manage counterparty risk. With the insurance market due to its complexity, products and structure providing an ideal opportunity for criminals to launder money, it is key that insurers, brokers, and MGAs understand anti money laundering regulations. The whitepaper provides a simple breakdown of what REG customers are required to do to avoid noncompliance penalties. AML really can be as easy as 123!
To read our whitepaper: https://reg.uk.com/aml-three-letters-made-simple/
Insurers’ biggest threats are crime, regulation and technology, says PWC
According to professional services firm PricewaterhouseCoopers (PWC), the three biggest concerns for insurers worldwide are crime, regulation and technology. These results come from PWC’s biennial insurance banana skins report which was based on 607 responses from 47 territories, including 91 UK respondents.
Crime was highlighted as the largest threat global insurance industries will face over the next two to three years. Respondents seemed to highlight their worries regarding the underestimation of potential costs of cyber crime when writing policies.
The report identified the rise of regulatory risk as the second largest concern for global insurance professionals, driven by the implementation of measures such as Solvency II and IFRS 17. The most visible factor found by the report were concerns over the volumes of new rules being implemented which naturally are accompanied by costs and compliance burdens which respondents believed hinder innovation and competition.
Lastly, the third greatest threat to the global insurance industry was identified as the need for business and technology modernisation. Respondents shared the view that many sector players are disadvantaged with old business models and poorly equipped IT infrastructures that cannot handle the fast pace and changing demands of the industry. Opposingly, insurtechs were generally seen by respondents as quick to react to digital demands.
Ghost broker jailed in Cambridge
A man in the city of Cambridge has been sentenced and jailed at Cambridge Crown Court for offering fake insurance broking services to Polish nationals living in the UK.Responsible for this is Marek Complak, 51, of Almond Grove, Bar Hill, Cambridge, who set up false or invalid car insurance policies presenting himself as a broker for multiple well-known insurers. This is known as ‘ghost broking’.
With both his fluent Polish and English speaking abilities, Marek targeted UK-based Polish communities using the alias “David Brooker” to set up invalid car insurance policies whilst also ‘employing’ unknown agents to find more people to lure. The fake broker was arrested by City of London Police’s Insurance Fraud Enforcement Department (IFED) following multiple reports to the UK’s national fraud and cybercrime reporting centre – Action Fraud.
The ghost broker has been sentenced to two years and six months in prison for his ghost broking activities.
See below: Marek Complak, Ghost Broker
REG shares its insights on concerns over product governance rules
The FCA have voiced their concerns regarding the failure of understanding on behalf of brokers regarding the “fair value” product governance rules.
Fair value is interested in how firms design, sell and review their products to ensure they meet the needs of their customers. Upon reviewing the updated rules, findings showed that indeed some firms made good progress in understanding existing rules and guidance on product governance and value issued in 2018 and 2019 as well as against temporary guidance on product value, issued in response to Covid-19 last year. However, many firms have been found to not comply with the FCA’s standards with a lack of preparation for enhancement of the rules which commenced 1st October 2021.
To find out more and see how REG can help follow: https://reg.uk.com/let-us-assist-with-fcas-fair-value/
Should (re)insurers be concerned about ransomware?
In a new report on cybersecurity risks, analysts at Fitch Ratings point out that ransomware in particular is becoming a “growing concern“ for the (re)insurance industry.
Fitch sees attacks as continuing to increase at an alarming rate for several reasons, including the potential for financial payouts, increased availability of tools to commit cybercrime, limited criminal enforcement to date and a growing digital footprint. While cybersecurity risk often falls under the rubric of “nonfinancial” risk, analysts at Fitch believes there is a very real and growing financial impact that re/insurers should be aware of.