FC-10.1 FC-10.1 General Requirements
FC-10.1.1
Insurance licensees must ensure that they allocate appropriate resources and have in place systems and controls to deter, detect, and record instances of fraud or attempted fraud.FC-10.1.2
Fraud may arise from internal sources originating from changes or weaknesses to processes, products and internal systems and controls. Fraud can also arise from external sources, such as claims fraud.
FC-10.1.3
Any actual or attempted fraud incident (however small) must be reported to the appropriate authorities (including the CBB) and followed up. Monitoring systems must be designed to measure fraud patterns that might reveal a series of related fraud incidents.
Amended: January 2007FC-10.1.4
Insurance licensees must ensure that a person is given overall responsibility for the prevention, detection and remedy of fraud, at a senior level of the organisation.FC-10.1.5
Insurance licensees must ensure the effective segregation of functions and responsibilities, between different individuals and departments, such that the possibility of financial crime is reduced and that no single individual is able to initiate, process and control a transaction.FC-10.1.6
Insurance licensees must provide regular training to their management and staff, to make them aware of potential fraud risks.Advance Fee Fraud
FC-10.1.7
In a number of jurisdictions, there have been a number of recent incidents whereby insurance entities have either been the victims of, or have inadvertently provided assistance to, advance fee frauds. Advance fee fraud consists of setting up a fraudulent and almost certainly non-existent financial or banking transaction, the aim of which is to defraud an innocent third party of an up front payment or deposit which is intended by the third party to be consideration for their involvement in that financial transaction, the receipt of a low interest or interest fee loan or the receipt of some other financial benefit. The types of transactions used as the façade for the frauds vary in detail, some of the most common are investment in financial instruments, self liquidating loans and loans or other financial benefits. Although these transactions are generally based around banking or securities transactions, it is occasionally the case that the transaction will purport to be guaranteed by insurers.
FC-10.1.8
The most common type of advance fee fraud is for a fraudster to approach a company or sovereign state which has a poor credit rating or which is in some financial difficulty and offer to obtain funding at beneficial rates. Likewise, a potential investor may be approached and offered the opportunity to invest in a transaction with a very high rate of return. In each instance, the borrower or investor will be asked to provide some funds up front to cover the costs of setting up the transaction or by way of a deposit or down payment on fees. Once the fee has been paid, the fraudster will disappear and the transaction will, on further investigation, prove to be fictitious.
FC-10.1.9
Insurance licensees are encouraged to promote the exchange of information amongst themselves with respect to fraud and those committing fraud including, as appropriate, through the use of databases. Licensees should also consider the need to exchange information with the police and other external bodies.FC-10.1.10
Insurance claims fraud is an offence punishable under the provision of Section 391 of the Penal Code, Decree Act No. (15), of 1976 of the Kingdom of Bahrain.
Guidance Provided by the IAIS
FC-10.1.11
In October 2006, the International Association of Insurance Supervisors (IAIS) issued Guidance Paper on Preventing, Detecting and Remedying Fraud in Insurance (see www.iaisweb.org/publication). The Guidance Paper has been developed to help the insurance sector prevent and detect cases of fraud. Insurance licensees should assess their own vulnerability and implement effective and efficient policies, procedures and controls to address the risk of fraud.
Adopted: October 2007
