Regulator proposes new guidance to guard against "weaknesses" in investment banks' bribery policies

In a report into the anti-bribery and corruption (ABC) systems of 15 firms, including those of eight major global investment banks, the regulator found "a number of common weaknesses" including lack of an adequate ABC risk assessment and poor management information. In addition, only two of the firms it visited had either started or carried out a specific ABC internal audit, it said.

The FSA said that it would consult on updated guidance on financial crime (56-page / 717KB PDF) for all firms within its regulatory scope, and refused to rule out taking further regulatory action some of the firms it had investigated. The regulator imposed large fines on insurance brokers Aon and Willis following a similar review of that sector two years ago.

"It is imperative that firms have adequate arrangements to control the risks of financial crime," said Tracey McDermott, the regulator's acting enforcement director. "We have seen examples of good practice and some examples of poor practice. 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."

The FSA requires that firms establish and maintain effective systems and controls to mitigate the risks of financial crime, including bribery and corruption. The Bribery Act, which came into force in July last year, made companies with a presence in the UK liable for bribery by staff, intermediaries or "associated persons" anywhere in the world unless they have "adequate procedures" in place to prevent it. The FSA said that it did not give guidance on the Bribery Act, which is enforced by the Serious Fraud Office (SFO). However, unlike the SFO, it does not need to find evidence of actual bribery before taking action against firms that do not meet its rules.

In the report, the FSA said that its visits and the introduction of the Bribery Act had acted as a trigger for firms to focus on issues related to corruption but that most firms had not properly taken account of its rules either before the implementation of the Act or after. It found "significant issues" in the way firms dealt with third parties used to win or retain business, and added that few had processes in place to keep track of the cumulative value of gifts and expenses in relation to particular clients or projects.

Anti-corruption law expert Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, described the report as a "wake-up call" for both investment banks and other authorised financial services firms.

"With its recent enforcement activity the FSA has shown its teeth," he said. "This report is a clear marker that the FSA is and will be targeting anti-bribery controls in all firms. Firms should ensure their controls meet FSA criteria."

The regulator's updated guidance (23-page / 423KB PDF) includes examples of good and poor practices drawn from the findings of its report. The FSA said that both it and, from next year, its successor the Financial Conduct Authority (FCA) would continue to focus on ABC issues in the financial services sector generally.