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Policy and Practice of equal importance for FCA compliance

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04/03/2014

Walker Morris Regulatory Team partner, Andrew Northage considers another case in which the FCA took enforcement action against inadequate anti-bribery procedures – even where no bribery had occurred

Jardine Lloyd Thompson

In late December 2013, the Financial Conduct Authority (the FCA) fined JLT Specialty Limited (JLT) £1.87m for failings in its anti-bribery controls in relation to overseas introducers that had assisted it to win and retain insurance business. The fine was reduced from more than £2.68m as a result of JLT agreeing to an early settlement.

JLT is an insurance broking, risk management and claims consulting business, and a wholly owned subsidiary of Jardine Lloyd Thompson Group plc, the largest Europe-based broker quoted on the London Stock Exchange.

Despite the fact that JLT’s due diligence procedures in relation to introducers had been assessed by an external adviser as being comprehensive in September 2011, and that the FCA found no evidence that JLT had either permitted or intended to permit any illicit payment or inducement to any overseas introducers, the FCA fined JLT for failing to use its procedures effectively:

  • JLT had failed to conduct adequate due diligence into overseas introducers to establish whether they were connected to the clients they introduced or to public officials
  • it had failed to appropriately assess the bribery risk arising with new business introduced by overseas introducers
  • it did not implement its own anti-bribery and corruption policies appropriately or check whether its policies were being implemented
  • it opened itself to the risk of entering into high-risk relationships with overseas introducers without suitable senior management approval.

The FCA found that JLT failed to properly assess and mitigate the risk in cases where certain risk flags were present, including higher risk jurisdictions, the involvement of public officials and state-owned companies.

The level of the fine partly reflected JLT’s failure to respond appropriately to industry-wide warnings regarding bribery and corruption, as well as recommendations made to it specifically after three FCA assessment visits. The FCA clearly felt that previous enforcement action against Aon Limited in January 2009 and Willis Limited in July 2011 did not have the intended deterrent effect. Tracey McDermott, the FCA’s director of enforcement and financial crime, said of the JLT case: “Firms cannot be complacent about their controls – when we take enforcement action we expect the industry to sit up and take notice.

WM Comment

JLT’s fine is a further reminder that the absence of illicit payments will not prevent the FCA taking action for anti-bribery failings. It is another stark warning that, while written policies and procedures are essential, they alone will neither prevent FCA enforcement action nor, arguably, amount to an adequate procedures defence if an employee or agent of a firm is found to be corrupt.

Policies and procedures should be risk-focused, detailed and comprehensive. They should also be implemented (including through staff training), monitored and reviewed.

As the FCA continues to focus resources on ensuring high standards and active regulation of bribery across the financial services sector, no business should risk enforcement action that could easily be avoided.

For more advice, contact Walker Morris Regulatory Team partner, Andrew Northage.

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