FCA targets commission arrangements in low-risk sectors
The Financial Conduct Authority (FCA) has fined insurance broker Besso Limited £315,000 for anti-bribery and corruption systems and control failings in respect of its commission arrangements with third parties.
This case illustrates how the Ministry of Justice (MoJ)'s guiding principles for compliance with the Bribery Act 2010 are permeating through all aspects of regulatory and compliance investigations.
This case also reaffirms the position that low risk business sectors and jurisdictions are not exempt from scrutiny.
The FCA findings
In its Final Notice dated 17 March 2014, the FCA found Besso to be in breach of Principle 3 of the FCA's Principles for Business in the period January 2005 to August 2011.
We set out below how the FCA findings correspond to the MoJ's guidance for commercial organisations in respect of the Bribery Act 2010:
Proportionate procedures: Besso had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. In November 2009, Besso introduced written bribery and corruption policies and procedures, but the content was not adequate and they were not properly implemented.
Besso failed to maintain adequate records of the anti-bribery and corruption measures taken on its third party account files.
Top-level commitment: No specific comment was made, although it is implicit that had there been top level commitment to compliance, many of these other breaches would not have occurred.
Risk assessment: Besso failed to conduct an adequate risk assessment of third parties before entering into business relationships.
Due diligence: Besso did not carry out adequate due diligence on third parties to evaluate the risks involved in doing business with them.
Communication: Besso failed to establish and record an adequate commercial rationale to support payments to third parties.
Monitoring: Besso failed to review its relationships with third parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship. Besso did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out.
What the FCA took into account in the level of the fine
Also of interest are the factors that the FCA took into account when determining the appropriate type and level of disciplinary sanction.
- Besso did take some steps to counter the risks of bribery and corruption (albeit that these were not fully effective)
- Besso did instruct solicitors to conduct a review of its systems (albeit not until October 2011) and implemented these recommendations promptly
- Besso's business was not in a high risk area and its third party recipients of commission payments were not in high risk jurisdictions; its policies and procedures should therefore be commensurate with that low risk status
- Besso agreed to a settlement at an early stage of the FCA investigation.
Key points to note
- Compliance across all areas is increasingly measuring itself against the key metrics set out in the MoJ guidance.
- Low risk business sectors and jurisdictions are not exempt from scrutiny.
- Co-operation and early settlement meant that Besso qualified for a 30% discount, reducing the fine to £315,000 from £450,000.
- The FCA is currently undertaking a thematic review of smaller general insurance brokers' anti-bribery and corruption systems and controls. As a result insurance brokers need to be extra vigilant with respect to their policies and procedures, especially with regard to monitoring that the policies in place are being complied with, and that staff are properly trained to make sure that they are apprised of the risks of non-compliance with those policies.
This article was written by Rhys Novak.
For more information please contact Rhys on +44 (0)20 7427 6563 or firstname.lastname@example.org
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