Internal Controls: The FSA and Anti-Bribery Compliance

From the perspective internal accounting controls and anti-bribery compliance, the findings published this past week by the Financial Services Authority (FSA) in London are highly revelant.  The FSA’s findings were based upon its review of the anti-bribery and corruption systems and controls in investment banks subject to its jurisdiction.  Although the FSA does not enforce the UK Bribery Act, it can take, and has taken, regulatory action against firms who fail to adequately address corruption risk.

The FSA found there to be a number of weaknesses in terms of internal controls which were common to a number of investment banks:

  • failure to take into account the FSA’s rules covering bribery and corruption;
  • failure to have adequate risk assessment for bribery and corruption;
  • management information on bribery and corruption was inadequate;
  • absence of internal audits for bribery and corruption;
  • significant issues arose in dealings with third parties to secure or retain business;
  • lack of mechanisms in place to ensure that gifts and expenses in relation to clients or projects were reasonable.

As is so often found in other settings, the FSA found there to be number of weaknesses that were generic in nature:

  • a limited understanding of the applicable legal and regulatory regimes;
  • incomplete or inadequate bribery and corruption risk assessments;
  • a lack of senior management oversight; and
  • a failure to monitor the effective implementation of, and compliance with, anti-bribery and corruption policies and procedures.

As a result of the FSA’s review, it will consult on proposed amendments to the FSA’s regulatory guidance, “Financial crime: a guide for firms.” The proposed new guidance applies to all firms within the scope of the FSA’s regulatory authority. It is not limited to investment banks. But even for firms not subject to the jurisdiction of the FSA, for attorneys, in-house counsel, accountants, consultants, corporate officials, and others providing advice on compliance issues, the insights provided are invaluable as to what to take into consideration in developing adequate internal controls and anti-bribery compliance programs.

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