The FSA published the findings of its review of investment banks’ anti-bribery and corruption (ABC) systems and controls on Friday 30th March. The FSA has made it clear that although the review focused on investment banking, the findings are relevant to all firms regulated by the FSA. The paper also makes clear that the FSA and the Financial Conduct Authority (from next year) will continue to focus on ABC issues.
While the FSA acknowledged that considerable work had been undertaken to implement effective anti-bribery and corruption controls, the majority of firms visited had more work to do and some firms' systems and controls fell short of regulatory requirements.
The overriding implicit theme is that the majority of financial institutions did not appear to have devoted sufficient resources and expertise towards developing comprehensive anti-bribery and corruption programmes.
- Insufficient consideration of FSA rules covering bribery and corruption
- Inadequate and incomplete risk assessments
- Lack of senior management oversight
- Lack of meaningful ABC Management Information and Key Risk Indicators provided to senior management
- Limited evidence of testing to monitor the effectiveness of ABC controls, and the extent to which policies were actually implemented in practice
- Weaknesses in overseeing relationships with associated parties employed to win or retain business
- Insufficient visibility and monitoring of gifts, hospitality and expenses
- Failure to consider ABC when vetting high risk staff.
The FSA is considering further regulatory action in relation to certain firms in its review. The FSA has imposed fines from £5 million to £7 million in its 2010 thematic review of insurance brokers. Companies face an unlimited fine and individuals may receive a prison sentence of up to 10 years for breaches of the law.
However, the report notes that there were no instances of major breaches of ABC policy (such as a bribe paid on behalf of one of the institutions reviewed) reported by any of the firms visited.
As a result of the review, the FSA has set out a series of proposed changes to the ‘Financial Crime: a guide for firms’. The proposed changes include new guidance and examples in chapters 2 and 6 of part 1, and a new chapter (chapter 13) in part 2 of the guide. The new chapter will consolidate all examples of good and poor practice highlighted in the review.
There are significant updates in guidance and examples in the following areas: risk assessment, governance, policies and procedures, dealing with third parties, gifts and hospitality (new section), staff recruitment, vetting and remuneration, and incident reporting and management.
- Assessing bribery and corruption risk. The firm takes adequate steps to identify the bribery and corruption risk, for example by using a range of expertise from both within and outside the business.
- Policies and procedures. Firms have conducted a gap analysis of existing ABC procedures against applicable legislation, regulations and guidance and made necessary enhancements.
- Training and awareness. Awareness raising initiatives, such as special campaigns and events to support routine training, are organised.
- Incident reporting and management. Firms use information gathered from whistleblowing and internal complaints to assess the effectiveness of their ABC policies and procedures.
While the SFO has said that gifts and entertainment are not their main focus, the FSA seems to be taking a different view. The report sets out some useful benchmarking of the amounts that firms allow for gifts and entertainment, but also creates an expectation that firms should monitor expenditure for its customers on a cumulative basis to ensure that the expenditure across the firm is reasonable. In our experience, very few firms are currently able to do so.
The review also suggests there needs to be an increased level of focus on remuneration structures that reward staff for taking unacceptable risks, including in relation to bribery and corruption. This is an area which has received relatively little attention to date.
- There is a consultation period for these proposed changed with a deadline of 29 April 2012.
- We will be discussing the proposed changes with our clients and look to feedback any key points.
- We will also be arranging a working group to consider the impact of the changes once the new guidance is published.
We have extensive experience of helping a wide and varied range of clients in financial services regarding ABC compliance, for example:
- Assessing bribery and corruption risks;
- Designing and implementing ABC programmes;
- Benchmarking/reviewing ABC programmes;
- Providing bespoke advice on key risk areas (e.g., the use of agents);
- Supporting Internal Audit in assessing ABC controls; and
- Undertaking investigations into allegations and suspicions of bribery and corruption.