Legal: Bribery Bill enhances Serious Fraud Office toolkit

Regulatory concerns about bribery and corruption within insurance brokers attracted widespread headlines in January 2009 when Aon was fined £5.25m by the Financial Services Authority. While the FSA had previously expressed its concerns in a Dear CEO letter in November 2007, the Aon fine galvanised many into action.

The FSA is well aware of the deterrence effect of its fines and penalties and it plans to increase fines still further; this is part of a bigger picture of a more hostile regulatory environment for insurance brokers. Although the blame for the financial crisis has largely been put at the door of banks and hedge funds, the consequences, particularly in the form of tougher regulation, will affect all regulated businesses.

Increasing action

The FSA now talks of intensive supervision, aggressive enforcement and credible deterrence. While the FSA never (officially) liked the phrase 'light touch' to describe its regulation in the past, the risk of regulatory action is now greater and the consequences likely to be more severe. Hector Sants, the FSA's outgoing chief executive, has said that "people should be very frightened of the FSA".

It looks as though the Serious Fraud Office will have the chance to follow in the FSA's footsteps when the Bribery Bill, currently making its way through parliament, becomes law. The Bill is, in part, a response to international pressures to bring UK law up to recognised international standards. There is also growing cross-border co-operation in this area, making the likelihood of investigation and enforcement action much greater than in the past.

Under the Bill, a company will commit a criminal offence if one of its employees or someone else associated with it bribes another person. The company will have a defence only if it can prove that it had adequate procedures in place designed to prevent persons associated with it committing bribery offences. The Bill carries criminal sanctions of unlimited fines and up to 10 years' imprisonment: potential enough to make the FSA's actions against Aon look relatively modest.

There are clear echoes here with the FSA's emphasis on systems and controls, although the FSA can bring action for inadequate systems and controls without having to show that any bribery has actually taken place.

The government has promised guidance on what constitutes adequate procedures. Brokers would be well advised to review their systems and controls against this guidance before the Bill comes into force later this year (along with their controls on the related issues of money laundering and financial sanctions) if they want to avoid being in the SFO's or FSA's spotlight.