NEW DELHI: The Insurance Regulatory and Development Authority (IRDA) has issued guidelines for the `Anti-Money Laundering' (AML) regime, which is to come into force from August 1.

The guidelines include strict adherence to KYC (know your customer) norms by insurance companies and the insurance regulator has asked insurers to have in place a proper policy framework by July 1.

Under the AML regime, it becomes mandatory for insurers to comply with the KYC norms in the case of all new insurance contracts.

Compliance entails obtaining all the necessary documents for clearly establishing the identity of the customer.

In the case of individual policies where the annual premium is Rs. 1 lakh, a detailed due diligence is to be exercised to establish KYC. In case a person, other than the policyholder, pays the insurance premium, the insurer company should scrutinise to establish the motive behind the move.

To decide upon the extent of due diligence, the insurance companies have been advised to classify the customer into high risk and low risk, based on the product and the individual's profiles.

The AML norms, the IRDA has said, should be strictly followed in the case of vulnerable products such as unit-linked products that provide for withdrawals and unlimited top-up premiums; single premium products where lump-sum investment is made and surrendered at the earliest opportunity; and free-look cancellations, particularly in big ticket cases.

However, exempted from the purview of the AML regime are products such as stand-alone health insurance, group insurance issued by a company and term life insurance contracts.

As a tracking measure, the insurance companies are required to submit suspicious transactions immediately to the Financial Intelligence Unit (FIU-IND).

Alongside, to ensure that insurance premium is paid out of clearly identifiable funding sources, the IRDA has stipulated that payment of such premium by cash should not exceed Rs. 50,000. Moreover, insurers can even formulate lower thresholds for cash transactions.

Besides, it has been made mandatory for insurance companies to report integrally connected monthly cash transactions above Rs. 10 lakh to the FIU-IND by the 15th of the succeeding month.

AML checks, according to the IRDA, become more important in such cases where the policy has been assigned by the policyholder to a third party not related to him, except in cases where the assignment is to regulated banks, financial institutions and capital market intermediaries.

The services of agents, who expose the insurance companies to AML-related risks, could be terminated. Insurers have been advised to appoint a `Principal Compliance Officer' (PCO) for the AML programme.

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