24th August 2025, Kathmandu
Under a new directive from the Nepal Insurance Authority (NIA), all insurance companies are now required to submit reports of suspicious transactions immediately to the Financial Information Unit (FIU).
Anti-Money Laundering in Insurance
Titled the “Directive on the Prevention of Money Laundering, Terrorist Financing, and Financing of Weapons of Mass Destruction, 2025,” this new regulation is designed to strengthen Nepal’s financial system and bring the insurance sector in line with global standards for combating financial crime.
Mandatory and Immediate Reporting
The directive makes it mandatory for insurers to perform careful scrutiny of transactions and immediately submit Suspicious Transaction Reports (STRs) or Suspicious Activity Reports (SARs) to the FIU. These reports must comply with the FIU’s existing guidelines. Furthermore, if a new suspicious fact emerges during an ongoing investigation requested by an authorized body, insurers are required to submit this new information as an additional report to the FIU and update their customer records accordingly.
To ensure effective compliance, the directive requires insurers to implement a comprehensive, risk-based assessment system. This system should be built upon three core pillars: risk assessment, customer identification, and transaction monitoring. Insurers must categorize risks and tailor their monitoring mechanisms to detect high-risk transactions early, ensuring prompt reporting.
Classification and Prevention of Suspicious Transactions
The new regulations also introduce a classification system for suspicious transactions. All suspicious activities must undergo a preliminary analysis by the insurer. If the transaction involves a high-profile individual or a Politically Exposed Person (PEP), the report must be specifically categorized as STR/PEP before submission to the FIU. Other suspicious activities are to be submitted as general STRs. This classification system is aimed at enhancing regulatory oversight and transparency.
Insurers must also establish mechanisms to identify and report not only completed transactions but also attempted suspicious transactions. If a customer attempts such an activity, the insurer is required to investigate and immediately file a report with the FIU. To facilitate this process, insurers must develop and regularly update indicators for identifying such suspicious activities, adapting to evolving criminal risks.
Strict Compliance and Reporting Safeguards
The directive includes several provisions to enforce strict compliance and protect the integrity of the reporting process:
Refusal to Establish Business Relationships: Insurers are explicitly prohibited from accepting proposals or establishing any business relationship with customers who fail to comply with legally mandated customer identification and verification procedures. Without proper customer due diligence, no insurance contract or professional engagement can be finalized.
Handling of Suspected Cases: If an insurer suspects a customer’s involvement in money laundering or terrorist financing and believes that continuing the identification process could alert the individual, they must halt the process immediately. A suspicious transaction report must then be filed with the FIU without delay, ensuring the suspected individual is not tipped off.
Independent Reporting: To prevent conflicts of interest, the directive mandates that if a suspicious transaction involves a member of the implementing officer’s immediate family or a close relative, the report must be filed by another authorized officer. This measure enhances the credibility of the reporting system.
Conclusion
The new directive from the NIA significantly expands the compliance obligations of insurers in Nepal. By mandating immediate reporting of suspicious transactions, requiring the development of risk-based monitoring systems, and enforcing strict customer due diligence, the directive ensures that insurance companies play an active role in safeguarding Nepal’s financial system against money laundering, terrorist financing, and related risks. This comprehensive framework will require insurers to strengthen their internal systems and provide staff with proper training to detect and report irregularities. This move not only enhances transparency and integrity within the financial sector but also aligns the Nepalese insurance industry with international best practices in anti-money laundering (AML) and counter-terrorist financing (CTF) compliance.
For More: Anti-Money Laundering in Insurance