The regulator has been reviewing the measures taken by
commercial insurance brokers against the risk that payments made to
foreign firms and individuals may in fact be bribes paid to win
business from overseas clients, particularly in high risk
jurisdictions.
In January, the FSA fined Aon Ltd £5.25 million for failing to
operate effective anti-bribery controls between 2005 and 2007 which
resulted in suspicious payments totalling about US$7 million being
made to a number of overseas third parties.
The decision prompted the regulator to undertake a general
review of broker firms' systems and controls. The final results are
still awaited but the FSA has decided to publish its interim
findings so that firms can take the necessary steps to strengthen
their own procedures.
Although the investigation found examples of good practice, the
FSA found a number of weaknesses common across the industry that
need to be addressed.
Few firms, for instance, carry out effective due diligence on
their third party relationships, preferring instead to rely on
informal market knowledge and very basic checks such as printing
website pages, which can easily be forged. Most brokers make no
formal checks at all on whether a third party has any connection
with the insured, the client or relevant public official.
The review also showed it is common practice for commission to
be shared 50/50 with the third party with no real consideration
bring given as to whether the amount reflects the value of the
services actually provided. Some, acting on the third party's
instructions, agree to pay the amount to another party without
clearly understanding why.
And nearly all the firms investigated were happy to receive bank
details from third parties informally, for instance by email,
leaving them open to the risk that payments might be made
unwittingly to somebody else.
The FSA found that such compliance and audit checking procedures
that do exist often follow a tick-box approach, ensuring only that
certain procedures are followed without considering whether the
underlying due diligence checks are adequate. Only a few firms have
adopted a risk-based approach that focuses on high risk
jurisdictions and third parties that are individuals.
The regulator also noted that the vetting of staff in insurance
broker firms is weak compared to other financial services. Firms
tend to rely almost entirely on references (even though they say
they are generally of little use), market gossip and referrals. And
although most firms require staff to take financial crime training,
there is little or no specific training provided on anti-bribery or
corruption.
The publicity given to the Aon fine, however, does seem to have
had a deterrent effect, with many firms using the FSA's final
notice as a reference point for a review of their own risk
management systems.
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