City watchdog finds most banks haven’t done anti-corruption audit and managers’ knowledge of corruption laws poor
The City watchdog has warned that many banks are failing to provide proper controls to prevent bribery and corruption despite the high profile introduction of the Bribery Act last year.
The Financial Services Authority said almost half of the 15 banks it visited for spot inspections failed to provide an “adequate anti-bribery and corruption risk assessment”. It said it was considering referring some for further investigation and possible fines.
The FSA warned that senior managers’ knowledge of corruption laws was so poor that it was “difficult for us to see how firms’ senior management could provide effective oversight”. Only two of the firms visited, it added, had carried out an anti-corruption audit.
“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,” said Tracey McDermott, the FSA’s acting director of enforcement and financial crime. “Firms across all sectors must have appropriate controls to manage their financial crime risks, whether related to bribery and corruption or otherwise.”
McDermott said the FSA, and the newly formed Financial Conduct Authority that will take on responsibility for financial wrongdoing from next year, will continue to monitor banks’ progress closely and will consider issuing fines.
The warning comes hot on the heels of an £8.75m fine handed down to Coutts, the banker to the Queen owned by RBS, for breaches of money-laundering rules after three years of “serious” and “systemic” problems in handling the affairs of customers vulnerable to corruption because of their political links.
The FSA’s latest investigation examined the banks’ rules and procedures to limit gifts and hospitality and check the background of future employees and remuneration structures. It found that investment banks generally limited hospitality to £400 for individuals and to £15,000 for corporate or sponsorship events. The report found that one banker had accepted corporate hospitality of “a three-day trip to the football World Cup in South Africa costing £10,000 for one employee and his wife”.
No individual banks were named in the report.
The introduction of the Bribery Act last year was the most significant overhaul of the UK’s bribery laws for 100 years, placing legal responsibility on firms for ensuring that anti-corruption measures are enforced.
Greg Brandman, a former manager in the FSA enforcement division and now a partner at law firm Eversheds, said: “There has been concern within the FSA for some time about the financial crime risk inherent in many banks’ business models and we can expect to see FSA enforcement action in this area in the not too distant future. The message from this latest thematic review is particularly clear: if financial institutions have not carried out an adequate anti-bribery and corruption risk assessment and made appropriate enhancements to their systems and controls, they had better get on with it, or they may not have a leg to stand on when the regulator comes knocking.”
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