Anti-bribery and Corruption Systems and Controls in Investment Banks

The Financial Services Authority (FSA) has published the findings of its thematic review into anti-bribery and corruption (ABC) systems and controls in investment banks.

In response to those findings, the FSA will consult on proposed amendments to the FSA’s regulatory guidance, ‘Financial crime: a guide for firms’. This proposed new guidance applies to all firms within scope of our financial crime rules, not just investment banks.

From August 2011, the FSA visited 15 firms, including eight major global investment banks and a number of smaller operations, to examine how firms mitigate bribery and corruption risk.  Bribery and corruption risk is the risk of the firm, or anyone acting on the firm’s behalf, engaging in bribery and corruption.

The FSA found that, despite a long-standing regulatory requirement to mitigate financial crime risk, the majority of firms in the sample had more work to do to implement effective anti-bribery and corruption systems and controls. In particular, it found the following common weaknesses:

  • most firms had not properly taken account of our rules covering bribery and corruption, either before the implementation of the Bribery Act 2010 or after;
  • nearly half the firms in the sample did not have an adequate ABC risk assessment;
  • management information on ABC was poor, making it difficult for the FSA to see how firms’ senior management could provide effective oversight;
  • only two firms had either started or carried out specific ABC internal audits;
  • there were significant issues in firms’ dealings with third parties used to win or retain business;
  • though 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.

The FSA is considering whether further regulatory action is required in relation to certain firms in its review.

Click here to download the full review:

FSA fines RBS for Breaching Financial Sanctions

The Financial Services Authority (FSA) has fined members of the Royal Bank of Scotland Group (RBSG) £5.6m for failing to have adequate systems and controls in place to prevent breaches of UK financial sanctions.

UK firms are prohibited from providing financial services to persons on the HM Treasury sanctions list. The Money Laundering Regulations 2007 (the Regulations) require that firms maintain appropriate policies and procedures in order to prevent funds or financial services being made available to those on the sanctions list.

During 2007, RBSG processed the largest volume of foreign payments of any UK financial institution. However, between 15 December 2007 and 31 December 2008, RBS Plc, NatWest, Ulster Bank and Coutts and Co, which are all members of RBSG, failed to adequately screen both their customers, and the payments they made and received, against the sanctions list. This resulted in an unacceptable risk that RBSG could have facilitated transactions involving sanctions targets, including terrorist financing.

The FSA considers that RBSG’s failings in relation to its screening procedures were particularly serious because of the risk they posed to the integrity of the UK financial services sector. This is the biggest fine imposed by the FSA to date in pursuit of its financial crime objective. It is also the first fine imposed by the FSA under the Regulations.

Margaret Cole, FSA director of enforcement and financial crime, said:

"The involvement of UK financial institutions in providing funds, economic resources or financial services to designated persons on the sanctions list undermines the integrity of the UK’s financial services sector. By failing to screen relevant customers and payments against the HM Treasury sanctions list, RBSG left itself open to the risk that it was facilitating terrorist financing."

"The scale of the fine shows how seriously the FSA takes this issue and should act as a warning to other firms to ensure that they have adequate screening procedures."

As RBSG agreed to settle at an early stage of the FSA investigation, it qualified for a 30% reduction in penalty. The FSA would have otherwise imposed a financial penalty of £8m.

[See the Chapter 11 of Mitchell, Taylor and Talbot 'Confiscation and the Proceeds of Crime' (written by Faisal Osman) for more details of the sanctions, regulations and case law concerning this issue]

Our Regulatory Law Work

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33 Chancery Lane is a leading set in proceedings before financial and professional regulatory bodies. In the financial context, members of chambers provide representation when the Financial Services Authority seeks to apply its enforcement powers against regulated and non-regulated firms and individuals and in mediation and settlement discussions, as well as accepting instructions to appear before the Tax and Chancery Chamber of the Upper Tribunal on appeal against a Decision Notice.  We also have experience of the preparation and submission of applications for authorisation by the FSA to conduct regulated activity.

Members of chambers frequently appear before professional disciplinary bodies and have particular expertise in proceedings before the Solicitors Disciplinary Tribunal; the Disciplinary Committees of the bodies regulating the accountancy profession, ACCA and ICAEW; and the Taxation Disciplinary Board.  We also regularly advise on, and appear in, disqualification proceedings pursuant to the Company Directors Disqualification Act 1986.

Members of chambers also have substantial experience of regulatory action brought by the Medicines and Healthcare products Regulatory Agency.

33 Chancery Lane’s specialism in cross-over work allows members to understand and address the conflicts and difficulties that arise when criminal and regulatory proceedings are pursued simultaneously.