On 16 June 2022 the FCA fined London-based insurance broker JLT Specialty Limited (JLTS) £7.9m for anti-bribery and corruption (ABC) systems and controls related failings, which at one point allowed payments of over $3m, which the FCA found to be bribes, to be paid to overseas government officials (see the FCA press release here).
FCA enforcement of ABC related systems and controls related matters in the insurance broking sector is not new: the early 2010s saw the FCA undertake a thematic review of ABC risks and issue a series of fines. Where recent FCA enforcement has tended to focus on anti-money laundering controls, this decision demonstrates that ABC risks in the insurance market remain on the FCA’s financial crime agenda.
Background
JLTS placed business in the London reinsurance market for another overseas JLT Group entity. The business had been introduced by a third-party introducer based in Panama. The FCA found that between 2013 and 2017, JLTS paid $12.3m in commission to the other JLT Group entity, which in turn paid $10.8m in commission to the third-party introducer. The introducer then paid over $3m to overseas government officials at a state-owned insurer, with the FCA finding that these payments were made in order to help retain and secure business for the JLT Group.
The FCA found that JLTS had contravened Principle 3 of the FCA’s Principles for Businesses, which requires a regulated entity to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems to counter the risk that it might be used to further financial crime.
Commentary
There are three key takeaways from this decision:
- This was not the first time JLTS was found to be in breach of ABC controls: in 2013 the FCA fined the entity £1.8m for similar breaches involving overseas introducers. Following that decision, JLTS implemented several improvements to its systems and controls framework (discussed further below).
However, this decision demonstrates that the FCA will pursue what it sees as repeat offenders, even those that undertake extensive (and expensive) remediation exercises, where things go wrong despite the exercise. Indeed, the FCA’s decision to open formal systems and controls investigations is often triggered by what it sees as a repeat of or failure to learn from previous issues identified by the firm and/or the FCA. - Following the 2013 fine, JLTS implemented an enhanced due diligence and approval process for third-party introducers. This required, amongst other things, that a KYC sub-committee of JLTS’ Board sign off on each appointment.
The FCA found that while these processes had been implemented with respect to JLTS’ own business, this was not the case where the relevant business was retained by an overseas JLT Group entity. There was no requirement, for example, for overseas JLT Group entities to acquire approval from the KYC sub-committee when appointing an introducer. It was this sort of oversight which the FCA found allowed the payments to be made in this case.
This finding emphasizes the importance of ABC controls being applied across all entities within a group, not just those in the UK. It also highlights that the FCA will expect a UK regulated entity to take responsibility for ABC controls where it is placing business in the UK market, even where the business relationship is held by an overseas entity. - In calculating the fine, the FCA took into account the fact that JLTS had self-reported the issue and assisted throughout the investigation, including by sharing with investigators materials from JLT Group’s own internal investigation. This led to a 30 per cent discount of the fine (which was initially set at £11m) and emphasizes the importance of transparent cooperation with the FCA throughout the life of an investigation.
Commenting on the FCA’s decision, Mark Steward, Executive Director of Enforcement and Market Oversight, noted: “Lax controls by JLT Specialty meant, ultimately, that money flowed into the pockets of corrupt officials. It is because of risks such as this that we are maintaining our focus on financial businesses’ financial crime systems, taking action where these firms fall short.” This decision certainly indicates that the FCA is set to continue its focus on financial crime failings in the years to come.
