For some, the New Year signals a renewed focus on wellbeing. To assist our clients assess the health of their “anti-bribery and corruption” (“ABC”) compliance frameworks, we look back on the Financial Conduct Authority’s (“FCA’s”) recent thematic review on “Bribery and Corruption in Commercial Insurance Broking” (the “Review”).
In this article, we jog through the key ABC obligations for authorised firms and work out what new issues were identified in the Review. Finally, we suggest some New Year’s resolutions by highlighting examples of “good practice” to potentially tone up your ABC compliance programme.
ABC Obligations for Authorised Firms
The Bribery Act 2010 (the “Bribery Act”) marked a watershed in criminalising certain corrupt business practices, whether committed in the UK or abroad, for all commercial organisations. The Bribery Act introduced into UK law the offences of:
- Failure to prevent bribery carried out on its behalf by a commercial organisation; and
- Consenting to, or conniving in, the bribery of another person by a senior officer of a commercial organisation.
The duties imposed on firms authorised by the FCA under the Financial Services and Markets Act 2000 (“FSMA”) are distinct from their obligations under the Bribery Act. Additionally, firms authorised by the FCA must comply with the provisions of the FCA’s handbook, which include having systems and controls in place to manage ABC risks.
In 2010, the FCA’s predecessor published a review in which serious weaknesses in some insurance intermediaries’ ABC systems and controls were identified. The 2010 review concluded that there was a significant risk that some insurance brokers might make illicit payments or inducements to, or on behalf of, third parties to win business.
The more recent Review assessed not only how the insurance sector had responded to the issues previously identified in relation to payments to third parties, but also considered whether insurance intermediaries were adequately addressing ABC risks across their wider businesses by reference to factors such as intermediaries’ governance; due diligence and ongoing monitoring of individual relationships; training; and whistleblowing.
According to the FCA, most of the insurance brokers sampled in the Review were not adequately managing ABC risks. A number of firms reviewed had not learnt lessons from the previous exercise.
The Review identified three key areas in which firms can improve going forward:
- Business-wide risk assessments – firms should identify bribery risks across the trading and non-trading aspects of their businesses, including all parties in the chain;
- Individual relationship risk assessments – the FCA expects firms to assess risk on a business-wide level (such as the risks associated with the sector, the class of business and levels of commission payments), rather than focusing on the political risk associated with a particular jurisdiction; and
- Governance and management information – firms should ensure that senior management maintain oversight of risk management.
The FCA, therefore, seems to be suggesting that authorised firms take a more holistic approach to risk management in the future. The FCA is encouraging firms to not only assess risk as a top to toe check across the entire business, but also at a more granular relationship level. Naturally, the results of such assessments should be shared with senior management and any issues acted on appropriately.
New Year’s ABC Resolutions
The Review featured a number of recommendations for “good practice”, which include:
- Appointing an Anti-Corruption Officer (or an appropriate member of senior management with responsibility for ABC)
- Ensuring risk assessments and due diligence are conducted using a number of different risk factors and then aggregating these risk factors to create an overall risk ranking
- Ensuring that the business rationale for third party introducing arrangements is clearly recorded
- Where a higher-risk relationship is identified, seeking senior management approval for the relationship with a full audit trail of the reasons justifying the high risk relationship
- Setting meaningful and proportionate gifts and hospitality thresholds that are relevant to the business
- Establishing registers to record gifts and hospitality, including incidents where proposed gifts or hospitality have not been approved
- Implementing a training programme that is repeated periodically
- Conducting a gap analysis of the FCA’s initial thematic reviews on ABC
- Creating an “Aide Memoire” for staff listing key points concerning ABC
The FCA has promised to take a zero tolerance stance where authorised firms have been warned of the risks of failing to comply with its ABC framework and take no, or inadequate, action. For instance, as a result of the Review, two firms voluntarily agreed to limit their business with certain third party introducers until they were able to formally attest to the FCA that remedial action in respect of such relationships had been completed.
The Review was published at the same time as the FCA opened a consultation on its “Financial Crime Guide” and forms part of the FCA’s ongoing probe into wider financial crime systems and controls at authorised firms.
The New Year may, therefore, prove to be a good time for a health check of your ABC framework and wider financial crime systems and controls, and, if necessary, to adopt some New Year’s ABC resolutions.