Compliance
Interview: The UK Bribery Act And Wealth Management - IMS Group

IMS Group, which advises firms on regulatory issues, explains the implications of the recent UK Bribery Act for wealth managers.
Editor’s note: As reported on Wednesday, lawyers and other professionals dealing with wealth managers are making a noise about the need for the industry to comply quickly with the potentially broad reach of the recently-enacted UK Bribery Act. IMS Group, which advises firms on such issues, has explained the implications of the legislation. Here are the views of Peter Moore, head of regulation and compliance at IMS Group.
How serious is the act for the private banking/wealth management industry in the UK and overseas?
“The act is a very serious piece of new UK legislation, introduced in order that the UK meet international obligations. It shines a bright light on the passing of money and non-monetary benefits between business persons or public officials around the time of the making of a key decision (for example to whom a particular piece of business is to be awarded).”
“The act applies to persons and firms conducting business in the UK, UK persons and firms conducting business anywhere in the world and non-UK firms conducting business in the UK. The latter issue has been described by the UK government as intended to achieve the affect of levelling the playing field, in order that UK firms aren't penalised for playing fair. Perhaps of more significance to Financial Services Authority-regulated private banking and wealth management firms is that the FSA has expectations of them to meet regulatory rules regarding the need to identify, mitigate and manage financial crime, the definition of which includes bribery and corruption.”
How aware is the industry of this legislation and the potential scope of it? Are you concerned?
“There was much media coverage in advance of the introduction of the Act. There was also much concern with debate surrounding whether the implications of the Act, indeed its intention, was to outlaw 'traditional' corporate hospitality. This was not the intention nor, in my opinion, the effect. The UK Government sought to address much of this concern and indeed this led to a delay in the implementation of the Act and the introduction of useful Ministry of Justice guidance on how to comply with it.”
The FSA said nothing about the Act in advance of its introduction but has said and done plenty since. The day the act took effect, it fined insurance company Willis for inadequacies in anti-bribery systems and controls. The FSA did not, nor did it need to, prove that bribery had actually occurred in the Willis case. The FSA then conducted a review of anti-bribery and corruption (ABC) controls at 15 large investment banks and was very vociferous in its disappointment at what it saw. In this work, the FSA also expressed disappointment that the investment banks had not taken notice of past work that the FSA had published in relation to commercial insurance companies in the area of bribery and corruption. Accordingly, all FSA-regulated firms should take note of the FSA's work at the investment banks and seek to apply the lessons as and when relevant to their own business and organisation.”
“I am concerned at the level of prescription within the FSA's recent publications on this subject. I hope its expectations take account of the idiosyncratic circumstances of each firm and also the incidence of bribery and corruption with UK firms (perhaps this isn't a huge problem). FSA firms have plenty of other risks to manage and compliance obligations to meet with their finite resources.”
What sort of issues should wealth managers be particularly concerned about in how this legislation applies?
“The first thing wealth managers need to do is get straight (both in their heads and then in their procedures) what the differences between but also the similarities are in relation to the following related areas:
- Anti-Money Laundering (with Politically Exposed Persons presenting a higher risk);
- countering terrorist financing;
- persons subject to economic sanctions;
- tax evasion or other criminal offences like fraud;
- bribery and corruption.
“With reference to bribery and corruption the firm should identify and address the following types of situation:
- situations in which it itself is making a decision (perhaps the taking on of a client, or the selection of a service provider); and
- situations in which it, or someone on its behalf, is making a payment (or delivering a non-monetary benefit) to someone that is making a decision relevant to the business of the firm, for example, whether or not it should conduct business with the firm.”
“Overlaying the above analysis should be other factors which influence the level of risk present such as what services the firm is providing, to what sort of people, where these people are, etc., the logic being that some countries, industrial sectors and even cultures create and present a higher risk of bribery and corruption.”
“The firm's procedures need to manage the making of payments and the giving and receipt of gifts and benefits to ensure that none of these are lavish or any way could be construed as an attempt to influence a decision. This can often be difficult as certain expenditure, namely the marketing department, could be considered to have an element of an intention of influencing such a decision. The crucial difference here is that expenditure which, say, informs clients or potential clients about the firm and its services, and helps the client understand these better and get to know the people involved, will be legitimate so long as it is not lavish.”
What sort of advice should they seek, and from whom? What sort of firms are advising people about the act? Have you seen an increase in demand for guidance?
“Law firms provide advice in relation to the act itself. Compliance consultancies are able to give advice on the FSA's expectations in relation to anti-bribery and corruption systems and controls at FSA-regulated firms. We have seen a huge increase in the amount of this work as a result of the FSA's many publications on the subject in recent months. We are able to assist firms to respond proportionally to these obligations.”
“Current deficiencies could result in a breach of the act, in particular, the corporate offence of failing to prevent bribery. However, a prosecution by the Serious Fraud Office is unlikely except where public policy would so demand (i.e. a very serious criminal wrong on a large scale).”
“FSA-regulated firms should be looking at the FSA's recent publications on this subject which include indications of good and bad practice. We certainly haven't heard the last of this from the FSA and we can expect some enforcement cases on the subject in the coming year.”
“It is noteworthy that the FSA's requirements in this regard appear much more prescriptive than the Ministry of Justice's guidelines which were published contemporaneously with comments by the relevant minister, Kenneth Clarke, to the effect that common sense would suffice in lieu of a copse worth of bribery-related paper work.”