Investigators at Lloyd’s of London have become concerned that some of the many independent insurance underwriters that make up the market may be breaching sanctions against Iran and other countries.
The Daily Telegraph of London reports that the firm’s investigators are reviewing the controls used by the market’s members to prevent them from breaking sanctions.
The review began two months ago with a final report due next year, in what is understood to be the first study by Lloyd’s into the issue of sanctions busting that some experts believe could prove to be the insurance industry’s “Achilles’ heel.”
Regulators in the US are understood to be concerned that insurers could be either deliberately or inadvertently providing services to businesses and individuals either directly or indirectly linked to countries that are currently the subject of international sanctions.
About 50 firms make up the so-called “managing agents” that are the backbone of the Lloyd’s market.
These firms ensure that all the risks they underwrite are compliant with sanction rules. However, under pressure to find new sources of revenues amid the economic slowdown, increased concerns have been raised over some of the risks they have taken on.
“The Financial Conduct Authority [FCA—Britain’s market regulator] has continuously imposed large fines on the banks for anti-money laundering (AML) systematic failures,” said Richard Berger, a partner at law firm RPC.
“Whereas AML does not feature so heavily on the anti-financial crime agenda for insurers, failure to mitigate the risk posed by trade and financial sanctions, could be insurers’ Achilles’ heel,” he told the Telegraph.
Many Lloyd’s members have no US-based business and the market is ultimately regulated by the FCA and the UK Treasury. However, it is thought that American regulators could attempt to bring action against firms that are either owned by a US parent group or have American investors, or those with US operations.
For instance, US financial group Travelers operates its own Lloyd’s underwriting syndicate and is one of the managing agents on the Lloyd’s market. Many other members have American investors.
Last year, Standard Chartered was hit with fines totaling $667 million by US regulators over its breaches of sanctions with countries including Iran, Libya and Sudan.
Barclays, Lloyds Banking Group and Royal Bank of Scotland have also faced their own fines over sanctions breaches in recent years, while HSBC was hit with a record $1.9 billion fine in December after the US authorities accused Britain’s largest bank of processing transactions for terrorist groups and rogue states.
