Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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12/30/2005 GAO Study Finds Insurers Prepared to Recover Critical Operations After Terrorism Attacks, But Outsourcing Arrangements Cause Concern
The end of 2005 produced a number of insurance-related developments. On December 22, President Bush signed the Terrorism Risk Insurance Extension Act of 2005, extending the 2002 Act through 2007.  In November, AML program requirements for insurance companies were finalized.  A less dramatic but still important development was the release of a GAO study of insurance sector preparedness. This study concluded that the insurance industry had made laudable progress in developing backup systems and recovery time objectives in the event of terrorist attacks and other disruptions.  One area where the GAO study may result in regulatory changes, however, involved the outsourcing of various functions, such as backup centers, often to overseas vendors. The study found that many insurers had not conducted on-site visits to vendors handing outsourced functions, and examiners often limited reviews of outsourced activities to inspections of insurance company documentation concerning the outsourcing arrangements.  The study is likely to encourage the development of more specific examination guidelines regarding outsourcing. The GAO study will be analyzed in detail in the February issue of the Monitor.

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