The Attorney General’sdepartment has been urged to use an Australian Prudential Regulation Authority standard as a template for its approach to anti-money laundering (AML) reform.

While the Federal Government is committed to implementing a risk-based approach to AML, its efforts so far have attracted criticism over what some see as a prescriptive approach to the know your customer and ‘customer due diligence’elements of the bill. But according to Insurance Australia Group (IAG), APRA’s risk management standard for general insurers (part of its stage II insurance supervision reforms) is a great example of a risk-based approach to regulation.

IAG’s group head of regulatory affairs Dr Barbara Carney said APRA’s standard has high-level principles and highlights key areas needing risk management without directing the method of dealing with the risk.

“A risk-based approach starts from the assumption that most customers are not money launderers and recognises that firms should be able to identify where financial crime risks reside in their own businesses,” Dr Carney wrote in IAG’s submission to the Senate committee reviewing the AML bill. “This approach allows firms to focus their efforts where they are most needed and where they will have the most impact. Taking a proportionate, risk-based approach to anti-money laundering can have significant benefits to businesses, being cost effective and enabling firms to identify and focus on high risk areas.”

While general insurance looks to have escaped the reforms – it is generally accepted that general insurance carries a lower risk of money laundering due to low premiums, non-cash settlements and according to international opinion – there are some concerns over particular types of general insurance which may contain elements of life insurance.

The Insurance Council of Australia (ICA) said that due to the diverse methods of insurance sales – by phone, internet or through intermediaries – insurers would be hit harder than most by the ‘know your customer’ elements of the bill. “In order to develop the know your customer provisions, insurers would have to develop extensive new systems to capture policyholder information and confirm their identities, even when relationships are through third parties,”said Alan Mason, ICA’s executive director. “Such system development would be a huge impost on the industry and would be disproportionate to the risks faced in respect of money laundering and terrorism financing.”

The Financial Action Task Force’s recommendations on money laundering, on which Australia’s reforms are based, also confirm the low-risk nature of general insurance.