FSA has identified some significant weaknesses in the firms it visited and asks firms to assess their own controls against FSA’s findings and strengthen them where necessary.
Click here for the full text of the FSA announcement.
FSA’s key findings are as follows
Due diligence and monitoring of third-party relationships and payments are generally very weak. In particular:
- firms rely heavily on an informal market view of the integrity of third parties
- no formal checks are carried out on whether third parties are connected to the insured, client or (where relevant) public official
- firms do not carry out regular reviews of their relationships with third parties
- commission is usually shared 50/50 between firms and third parties with no consideration of whether payments are commensurate with the services provided by third parties
- some firms have made commission payments to persons other than the relevant third party without a clear understanding of why
- some firms do not have a central list of all third parties used to obtain or retain business
- in some firms there is no independent checking of due diligence and the approval of third parties outside the producing department
Few firms adopt a risk-based approach, for example, by focusing on high-risk jurisdictions and those third parties that are individuals. Most firms adopt a ‘one-size fits all’ approach to their systems and controls.
Very few compliance and audit functions consider the adequacy of underlying due diligence relying instead on whether the authorised person in the firm has signed off the relationship. Some firms’ compliance and audit functions have never examined bribery and corruption and/or third party issues.
Bank details are often received via e-mail and there is usually no requirement for bank details to be submitted on official letterheads signed by an authorised signatory, thereby exposing firms to significant risk of fraud.
Vetting of staff in broker firms is weak compared with other financial service sectors. Very few firms carry out formal checks of criminal records or financial soundness and no firms repeat vetting during employment.
There is very little or no specific training on anti-bribery and corruption, even for staff in higher risk positions and staff responsible for training others on financial crime have generally not received any specialist training on bribery and corruption themselves.
Some firms have no formal limits on staff entertaining and expenditure. All firms visited had procedures for authorising expenditure and expenses, but some firms provide large cash advances for staff to facilitate travel in higher risk overseas jurisdictions where credit cards are not readily accepted.
Some firms have senior management who receive large bonuses directly related to the profitability of the business they generate.
It is clear from FSA’s interim report that FSA sees room for improvement in the anti-bribery and corruption systems and controls within commercial insurance broker firms. Firms would be well advised to revisit their systems and controls in light of FSA’s findings and carry out a gap analysis against the weaknesses identified by FSA in its interim report.