Financial Services - Written by Barry & Richard on Thursday, July 21, 2011 14:21 - 2 Comments
Easy tiger…no proven bribery = £7 million fine – FSA bares teeth (again)
Back in April we asked “Where is the FSA”?
Since the Aon enforcement in 2009 and a report into the insurance sector last year (which noted that the insurance broking industry was not prepared for the Bribery Act) there had been no activity.
Yesterday the FSA broke their silence again fining Willis just under £7 million. The full details are set out in the FSA Final Notice.
As we’ve said before, unlike the SFO, the FSA do not need to prove bribery to undertake enforcement action – a lesson Aon learnt to its cost when it was fined £5.25 million.
The same is true in Willis.
There is no proven bribery. Instead the FSA noted:
“During the Relevant Period, Willis Limited did not take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to Overseas Third Parties who helped Willis Limited win and retain business from overseas clients.”
Sound familiar? The FSA final notice in Aon said:
“Aon Ltd did not take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to non FSA-authorised overseas third parties (Overseas Third Parties) who assisted Aon Ltd in winning business from overseas clients, particularly in high risk jurisdictions.”
Pointing to a weak control environment the FSA highlighted 2 key points in its lengthy Final Notice:
1.What was the point?
The FSA found that Willis “failed to ensure that it established and recorded an adequate commercial rationale to support its payments to Overseas Third Parties.” Noting that “An adequate business case would have demonstrated in each case why it was necessary for Willis Limited to use an Overseas Third Party to win business and what services Willis Limited would receive from that Overseas Third Party in return for a share of its commission.” It was also noted that “Willis’ policies did not provide any written guidance on the amount of detail required when recording why it was necessary to use an Overseas Third Party.”
Training was also lacking. The outcome? There was inadequate recording of the justification for the appointment of the third party with the knock on consequence that Willis could not monitor the effectiveness of its procedures.
(2) Due diligence? not so much
The FSA concluded “Willis did not ensure that adequate due diligence was carried out on Overseas Third Parties to evaluate the risk involved in doing business with them.” As a result Willis was unable to assess whether the Overseas Third Party was connected with the insured, the insurer or public officials – significant factors in assessing the risk that improper payments to help win or retain business from overseas clients could be made.
Nearly £60 million of revenue was obtained as a result of the high risk relationships of which, Willis paid approximately £27 million in commission to these Overseas Third Parties. In other words nearly 50% of the revenue was paid out as commissions.
These failures resulted in the £7 million fine a number which the FSA said took into account a 30% discount for co-operation (they note that the fine would have been closer to £10 million without co-operation).
In words of the FSA “The FSA considers that the financial penalty imposed will promote high standards of regulatory conduct within Willis Limited and deter it from committing further breaches. The FSA also considers that the financial penalty will help deter other firms from committing similar breaches as well as demonstrating generally the benefits of a compliant business.” [our emphasis]
If your business is regulated by the FSA take note. This warning is directed to your business.