Brokers face millions in fines if they fail to invest in compliance and audit functions

Insurance brokers are paying a heavy price for failing to meet Financial Conduct Authority (FCA) standards on financial crime risks, according to a new whitepaper released this month by global accountancy and consulting network firm Moore Stephens International.

The whitepaper, Tackling Financial Crime: How insurance practitioners can ensure they are doing enough, cites findings from a FCA thematic review published in 2014 that concluded “most insurance intermediaries did not adequately manage the risk that they might become involved in bribery or corruption”.

The review published fines issued to three global brokers between 2009 and 2014. Willis was fined a total of £6.89m (€9.52m), Aon was fined £5.25m (€7.25m) and JLT paid £1.88m (€2.6m) for breaching anti-bribery and corruption (ABC) regulations.

In its analysis of the thematic review, the whitepaper found that firms were failing to invest in resources required to mitigate financial crime risks, often owing to budgetary constraints. As a result, companies have incurred substantial FCA fines for not complying with ABC regulations.

The report suggests that brokers should invest in resources for compliance and audit functions to enable effective risk management. However, it says that cost restraints are often cited as “a barrier to employing sufficient personnel”, but concludes that: “failure to appropriately resource an oversight function not only demonstrates a lack of understanding of the risks involved but also has been shown to be a false economy, as can be seen from a number of regulatory fines and skilled persons reviews”.

In addition, the report identifies a number of structural improvements companies should make to ensure they meet FCA standards on ABC, anti-money laundering (AML), counter-terrorist financing and sanctions, systems and controls. Appointing a board member as money laundering reporting officer was one recommendation from the report.

The report states that financial crime controls are more likely to be effective when “the executive, senior manager and all staff have a clear insight into their client base, market, transaction activity and changes within the regulatory environment, as well as sanctions lists, Financial Action Task Force reports and money laundering requirements.

“To demonstrate that appropriate governance arrangements are in place, firms should have a clear governance structure, which ideally includes regular committee or board meetings to discuss risks, including AML, ABC and sanctions risks. These meetings should be supported by good quality management information, which contains sufficient granularity to enable senior management to properly discharge their functions.”