UK Points the Finger at Investment Bank ABC Compliance
The UK’s Financial Services Authority has sent a warning shot to investment banks – big and small. In a blistering report, the FSA outlined a number of deficiencies in ABC compliance by investment banks. Given the close working relationship between the US and UK, the Justice Department and the SEC are sure to take note of this report and incorporate it into their ongoing ABC inquiry of the financial services market. It goes without saying, but I will write it again – investment banks need to get their houses in order, and do so quickly.
The FSA conducted a review of 15 firms, eight of which were global investment banks and the remaining were smaller, niche operations. The FSA’s review found that:
1. Most firms did not have an anti-corruption compliance program, before the effective date of the UK Bribery Act, July 1, 2011, or after the effective date of the UK Bribery Act.
2. Almost half of the firms did not have a risk assessment process in place.
3. Firms did not have an adequate understanding of ABC compliance.
4. Senior management was not being adequately informed of compliance issues and not monitoring such compliance efforts.
5. There were significant deficiencies in third-party due diligence processes.
6. There was little understanding of the importance of prospective gifts, meals and entertainment approval processes and supervision and monitoring of the process by senior management.
7. Basic training was being conducted but specific training for high risk positions was inadequate or non-existent.
8. The firms had no basic monitoring operations to oversee the compliance program and make modifications, as needed.
The FSA’s acting director concluded that the firms’ overall efforts were “too slow and too reactive.”
The FSA outlined a number of new “best” practices:
1. Hire outside assistance for conducting risk assessments.
2. Ensure that internal conflicts of interest do not prevent adequate assessment of internal risks.
3. Make sure that risk assessment includes adequate consideration of legal and regulatory obligations and is integrated into training and operational processes.
4. Make sure that there are procedures in place to assess any deficiencies in existing compliance policies, and to ensure adequate internal reporting and disciplinary procedures for breaches of the ABC policy.
5. Ensure that compliance officials are involved in interviewing possible third party agents and that ABC training is provided to third party agents.
6. Review existing gifts and hospitality processes are in place to define prospective review and approval of gifts and entertainment, prohibit any cash gifts, and create approval process for any extraordinary gifts.
The firms subject to the review have to submit revised ABC compliance programs by April 29, 2012 to demonstrate compliance with the FSA’s findings.
Investment banks in the US and the UK should review the report with a critical eye towards self-assessment of their own anti-corruption compliance program. It is important to respond to any deficiencies to improve compliance.