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Bribery Controls in Financial Services: twin peaks

The Serious Fraud Office (SFO) has been much criticised for its lack of Bribery Act prosecutions in the almost 3 years since it came into force, with many concluding that implementing procedures is unnecessary. The threat of companies being prosecuted for failing to prevent bribery if they do not have adequate procedures in place has started to seem rather hollow. The financial services sector, however, has generally regarded anti-bribery as nothing really new – with its quite separate regulatory requirements to have such procedures in place in any event, the Financial Conduct Authority (FCA) has been seen to be issuing big fines for inadequate anti-bribery systems such as JLTSL, Willis & AON, whilst the SFO has appeared quiet on the bribery front - but this is likely to change.

Whereas the FCA needs only to prove the absence of anti-bribery procedures before it can take enforcement action; the SFO must additionally prove that bribery has occurred before it can prosecute corporates for the section 7 offence (failure to prevent bribery). The effect is that many financial services firms will, entirely understandably, view the FCA as the more dangerous regulator and consequently focus on it, especially if there are potential breaches. Until now, that was probably the right approach but, with legal changes coming into effect in February 2014 regarding Deferred Prosecution Agreements, and the SFO gearing up to flex its bribery muscle, financial services firms need to ensure both regulators are on their radar.

If the prospect of a civil fine from the FCA is not daunting (and expensive) enough to ensure that financial services firms are anti-bribery compliant; the possibility of a concurrent criminal investigation should be more so. The consequences of a criminal conviction can be even more devastating with unlimited fines (set by the courts rather than the regulator); confiscation of sums equivalent to the amount of benefit derived from the bribery; and disqualification from public tendering not to mention the collateral reputational damage.

The Libor scandal

In the aftermath of the Libor scandal, the relationship between the Financial Services Authority (FSA) (which is now part of the FCA) and the SFO was heavily criticised for its lack of co-ordination. This has changed and the two regulators now work closely to ensure that criminal enforcement action is taken whenever appropriate. If weak systems lead to bribery (such as through excessive hospitality), financial services firms will need to make sure that engagement with the SFO is considered at the very outset. If Willis - which involved the payment of bribes not just a lack of adequate systems – happened now, it is quite possible that the FCA would have passed the matter to the SFO for investigation rather than simply regarding the occurrence of bribery as an aggravating factor to justify a heavier fine.

Self-reporting to the SFO can lead to huge advantages and mitigation in penalty. The SFO is likely to use DPA’s to encourage this and to enable them to charge companies with a criminal offence, but to suspend those charges on conditions including co-operating with the prosecution of individuals, and so is likely to see an increase in bribery enforcement through the criminal courts.

The regulatory landscape is changing generally but especially in the financial services sector.

If you have any questions or would like more information please contact Joanne Hall, Associate Partner, Regulatory.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.