FSA review into anti bribery and corruption systems in investment banks shows more work needs to be done

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Richard Indge, Partner, EY Fraud Investigation & Dispute Services comments on today’s announcement:

“The FSA has made clear that firms are still lacking in controls when it comes to bribery and corruption. Following the introduction of the Bribery Act, companies must have adequate procedures in place to address third party risks – including outsourced business or partners. If they are not compliant companies can be fined or executives imprisoned.

“Public commitments by the FSA and other public enforcers against bribery and corruption mean it is now crucial for companies to adopt the same risk procedures for third parties and partners in other countries that they would routinely enforce in other parts of their business. Financial institutions need to raise flags before, and during, the engagement of third parties to ensure they are not unwittingly tainted by partners who could be paying bribes or carrying out corrupt activities.”

Key issues

Richard Indge continues:

"Despite previous communications from the FSA on anti-bribery and corruption (ABAC) controls and the publicity around the Bribery Act, the FSA has made clear that the information that boards or senior management are receiving remains inadequate to provide effective oversight. Practically, this means senior management being provided with information that answers the questions 'what are our bribery risks', 'how are these risks being mitigated' and 'what assurance can you give me that these risks are effectively being mitigated'.

"Risk assessments are a key tool in understanding the ABAC risks faced by a business and must be regularly reviewed and updated as external and internal bribery and corruption risks change.  The FSA has stated that nearly half of the firms surveyed did not have an adequate ABAC risk assessment and had not done enough to implement effective ABAC controls. Understanding what constitutes an 'adequate ABAC risk assessment' should include looking who an organisation does business with and reviewing the nature of these relationships for potential bribery and corruption risks."

What's next?

"The FSA has stated, in this review and in the previous review into insurance brokers, that the findings are applicable to all regulated firms. The FSA and its successor will continue to focus on ABAC issues.  This may include taking further regulatory action against organisations who have failed to review their ABAC systems and controls and bring them up to the standards required.  Organisations should carefully consider the proposed guidance issued by the FSA and consider whether they have 'done enough' in this area.   We have already seen some large fines levelled at insurers over anti-bribery and corruption systems and controls failings and, given the new penalty regime, we would expect the level of fines to increase."

For further information or an interview with the EY Fraud Investigation & Dispute Services team on anti-bribery and corruption risk assessments contact Jonathan Marciano on 020 7951 9456

Link to FSA announcement
http://www.fsa.gov.uk/library/communication/pr/2012/035.shtml