By Simon Miller
Certain investment firms could face regulatory action by the Financial Services Authorities (FSA) after a review found that companies were failing to implement effective antibribery and corruption (ABC) systems.
According to the regulator, an investigation into a sample group of eight major global investment banks and a number of smaller operations, found that, despite a long-standing regulatory requirement to mitigate financial crime risk, there was still work to be done to counter these risks.
In particular, the FSA found that most firms had not properly taken into account the rules covering bribery and corruption and nearly half the firms did not have adequate ABC risk assessment.
In addtion, management information on ABC was poor, making it difficult for the FSA to see how firms’ senior management could provide effective oversight and only two firms had either started or carried out specific ABC internal audits.
Finally, the regulator found that there were significant issues in firms’ dealings with third parties used to win or retain business and that although many firms had recently tightened up their gifts, hospitality and expenses policies, few had processes to ensure gifts and expenses in relation to particular clients/projects were reasonable on a cumulative basis.
As a result, the FSA is considering whether further regulatory action is required in relation to certain firms in its review.
“Firms across all sectors must have appropriate controls to manage their financial crime risks, whether related to bribery and corruption or otherwise. The FSA and, from next year, the Financial Conduct Authority will continue to focus on financial crime risks in this sector and beyond to ensure firms are meeting their legal and regulatory obligations," said FSA acting director of enforcement and financial crime Tracey McDermott.
However, despite the shortcomings, the FSA said the visits by the regulator and the Bribery Act had acted as a trigger for firms to focus on ABC issues.
McDermott added: “It is imperative that firms have adequate arrangements to control the risks of financial crime. We have seen examples of good practice and some examples of poor practice. Overall, despite the high profile of the issue, the investment banking sector has been too slow and too reactive in managing bribery and corruption risks."
The thematic review of ABC systems and controls kickstarts a consultation into proposed amendments to its regulatory guidance Financial crime: a guide to firms.