The FSA has published some of the interim findings arising from its review of commercial insurance brokers' anti-bribery and corruption systems and controls
The review (which is ongoing) follows a “Dear CEO” letter that was sent to certain insurance brokers in November 2007, in which the FSA stated that it expected firms to review their business practices and controls, in order to minimise the risk that they would make illicit payments on behalf of third parties. It also follows the financial penalty imposed by the FSA on Aon Ltd earlier this year for failing to take reasonable care to establish and maintain effective systems to counter the risk of bribery and corruption associated with making payments to overseas firms and individuals.
The interim findings highlight a number of areas of concern for the FSA, many of which were also identified in the Aon case. These include:
- Due diligence and monitoring of third party relationships and payments is generally weak. Practices that the FSA highlight as giving cause for concern are:
- Firms rely on an informal ‘market view’ of the integrity of third parties and on basic checks. The FSA found that few firms conduct detailed checks of higher risk third parties similar to anti-money laundering ‘enhanced due diligence’.
- Most firms conduct no formal checks on whether third parties are connected with the assured, the client or a public official and, historically, firms have not taken any steps to establish or review the nature of third parties’ involvement in insurance transactions.
- Some firms do not conduct regular reviews of their relationships with approved third parties.
- Several firms did not review (or conduct their own) due diligence of third parties when teams or businesses were acquired from other firms.
- Commission is usually shared 50/50 between firms and third parties, with no real consideration of whether such payments are commensurate with the services provided.
- Some firms, acting on the instructions of third parties, made commission payments to persons other than the third party without a clear understanding of the reasons why they were being asked to do so.
- In some firms there is no independent checking of due diligence and third party approvals outside the producing department, and some firms did not have a central list of all the third parties used to obtain business.
- Whilst all of the firms had staff to carry out a Money Laundering Reporting Officer (MLRO) type role, the FSA found that no firm had ever made a Suspicious Activity Report and one firm had discussed a suspicious incident that, in the FSA’s view, it should have reported under the Proceeds of Crime Act.
- Most firms adopt a “one size fits all” approach to controls, not taking into account the greater risk related to certain countries and third parties who are individuals. This follows the FSA’s criticism of Aon’s procedures, which did not take into account jurisdiction risk.
- Few firms’ compliance and audit functions consider the adequacy of due diligence, for example only checking that an authorised person in the firm has signed off on the relationship.
- Nearly all firms receive bank details from third parties through informal channels such as email, exposing them to significant risk of fraud.
- Vetting of staff in broker firms is weak, relying on references and market gossip. Few firms carry out formal checks of criminal records or financial soundness and no firms repeat vetting during employment.
- Firms provide little training on anti-bribery and corruption and, generally, staff responsible for such training have not, themselves, received training on financial crime.
- In some firms, large cash advances are given to staff for travel in higher risk overseas jurisdictions where it is argued credit cards are not accepted.
Although the FSA’s findings relate to commercial insurance brokers, all firms would be well-advised to take note of the Aon case and the FSA’s interim findings and to review their own anti-bribery and corruption systems and controls. The FSA has clearly sounded a warning shot and it would be imprudent to ignore it.
These interim findings and last month’s SFO “Guide” also provide a useful insight for corporates as they prepare for the introduction of the Bribery Bill and the need to have in place “adequate procedures”, particularly since there are increasing indications that no formal guidance on this issue will be forthcoming.
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