Insurance and AML: Life Insurers, Beneficiaries and PEP Checks

Insurance rarely appears in money laundering headlines, but it is a regulated financial sector with its own AML expectations, and the picture changed in 2026 when the Financial Conduct Authority published the results of a review of insurers' financial crime controls. This guide explains where insurance sits within the UK's Money Laundering Regulations, what the rules say about beneficiaries and politically exposed persons, what the FCA found and what the Financial Action Task Force says about life insurance risk. It is written for accountants, compliance staff and students who deal with insurers, brokers or clients who hold life policies.

Which insurance business is in scope

The Money Laundering Regulations 2017 do not treat all insurance alike. A Freshfields briefing on the FCA's review states that general insurance is outside the scope of the Money Laundering Regulations regime, a government policy choice reflecting its lower financial crime risk. General insurers are still subject to the FCA's wider financial crime requirements, and the FCA's own Financial Crime Guide says it is less relevant for firms with more limited AML responsibilities such as general insurers and general insurance intermediaries, while noting it may still help them reduce the risk of handling criminal proceeds. The Regulations do contain specific provisions on long-term insurance, and the FCA's review treated life, retail and wholesale insurers as three distinct groups. Whether a particular firm or intermediary is within the Regulations depends on the business it carries on, so check its permissions and its supervisor's guidance rather than assuming.

Why life insurance carries money laundering risk

According to the Financial Action Task Force's 2018 guidance on a risk-based approach for the life insurance sector, many life insurance products are not flexible enough to be a money launderer's first choice, and the sector's overall risk is generally considered lower than that of many other financial products. The risk has not gone away, though, because the money used to buy a policy may still be criminal proceeds. The guidance points out that risk varies sharply by product. Complex investment-linked products that can hold funds and allow assets to move are higher risk than simple protection policies that pay out only on death, disability or illness. Pension policies with no surrender clause that cannot be used as collateral are treated as lower risk.

The same guidance lists the sort of features and behaviour that should raise questions:

• Early surrender of a policy for a large amount without an understandable reason, or multiple surrenders with no economic justification.
• Premiums paid in cash or by methods that favour anonymity, or payments from unrelated third parties.
• A request to pay proceeds to a third party who is not the beneficiary.
• A large investment in a unit-linked product by someone whose wealth cannot be explained.
• Complex structures, including trusts as beneficiaries, that separate legal and beneficial ownership.
• Changes to the beneficiary, which the guidance treats as a trigger for fresh due diligence.

Note that the FATF guidance dates from 25 October 2018 and, as the FATF's own page says, predates later revisions to its standards, so treat it as a framework rather than a current rulebook.

Beneficiaries and politically exposed persons

Life insurance has a feature most other products lack: the person who ultimately receives the money may not be known when the policy is sold. The UK Regulations deal with this directly. Regulation 35 sets out enhanced due diligence for politically exposed persons and includes specific rules for firms providing long-term insurance. Such a firm must take reasonable steps to check whether beneficiaries, or the beneficial owners of beneficiaries, are politically exposed persons or their family members or close associates. That check must happen before any pay-out or before the policy is assigned. Senior management must be informed before a pay-out to a beneficiary linked to a politically exposed person, and the firm must scrutinise the whole relationship with the policyholder. The enhanced requirements also continue for at least 12 months after a person leaves a prominent public function, or longer if the firm judges the risk warrants it. Regulation 35 as amended also treats domestic politically exposed persons as lower risk, by default, than non-domestic ones. Our guide to politically exposed persons sets out how the wider regime works.

The FATF guidance supports the same timing. It says insurers should take the name of a beneficiary when designated, or enough information to identify the beneficiary where they are named by class, verify identity at pay-out and check politically exposed person status no later than the payment.

Intermediaries and outsourcing

Insurance is often sold through brokers, advisers and other intermediaries. The FATF guidance is clear that where an insurer relies on an intermediary for customer due diligence, it must satisfy itself that the intermediary is regulated and supervised for AML, and that ultimate responsibility stays with the insurer. The same applies to outsourcing: the insurer keeps full responsibility for AML controls.

What the FCA found in 2026

Freshfields reported on 1 July 2026 that the FCA had completed a multi-firm review of financial crime systems and controls at 38 UK retail, wholesale and life insurers. The systems and controls at the large firms reviewed were mostly effective, according to that summary, but firms still fell short of best practice on design, implementation, governance and the ability to evidence controls. The main gaps were:

• Group frameworks. Firms relied on global group policies without tailoring them to UK entities, which left ownership and oversight unclear.
• Monitoring. Approaches to transaction and controls monitoring varied widely and needed to be evidenced and periodically reviewed, especially where risk was judged lower.
• Customer due diligence. Weaknesses were mainly caused by undocumented processes, most acutely among retail insurers. Firms often did not record why they had used simplified due diligence.
• Third-party risk. Firms accepted that outsourcing does not reduce regulatory liability, but oversight was rarely scaled to risk.

By sector, the summary describes life insurers as moderate to good, strongest overall but needing better transaction monitoring, and retail and wholesale insurers as moderate. The FCA expects all insurers, not just those reviewed, to compare the findings with their own business. Good practice included naming UK entity-level owners for group policies, keeping an obligations register that links requirements to controls, and recording the reasons for any simplified due diligence. Our guide to transaction monitoring and adverse media screening covers the monitoring point in more detail.

What it means for accountants

If you audit, advise or prepare accounts for an insurer or broker, the review gives you a ready-made checklist for risk discussions. If your clients hold life policies, perhaps in trusts or through companies, you should know that a policy can be a place where wealth is held and moved, and that a surrender or a change of beneficiary may be relevant to your own customer due diligence. Either way, keep your documentation current and make sure staff understand how your obligations differ from your client's.

Frequently asked questions

Is general insurance covered by the Money Laundering Regulations?

According to a Freshfields briefing on the FCA's review, no. General insurance is outside the Regulations, but general insurers remain subject to the FCA's wider financial crime requirements.

When must an insurer check whether a beneficiary is a politically exposed person?

Under regulation 35, firms providing long-term insurance must take reasonable steps to check before any pay-out or before the policy is assigned.

Are life insurance policies high risk?

It depends on the product. The FATF guidance treats simple protection products as lower risk and complex investment-linked products as higher risk.

Where can I find training on financial crime?

See Learnsignal's CPD courses for finance professionals.