JLT Specialty FCA fine: Regulator slaps £7.8m penalty for bribery and corruption failings

JLT Specialty Limited (“JLTSL”), a UK insurance broker, risk management and insurance claims service were previously fined £1,876,000 in 2013 for breaches of Principle 3. This related to failure to have adequate risk management systems for countering the risks of bribery and corruption associated with making payments to overseas introducers, between February 2009 and May 2012. Following a two-phase Skilled Person review JLTSL’s uplifted control framework was signed off by its Skilled Person and implemented on a group-wide basis. However, owing to further related issues the FCA have now fined JLTSL £7.8m.

The FCA fines relates to breaches of Principle 3 (Management and Control) of the FCA’s Principles for Business (“PRIN”) between November 2013 and June 2017 relating to failure to take “reasonable care to organise 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.”

JLTSL’s poor systems and controls enabled it to become involved in allowing more than $3m in bribery payments to be paid to Colombian government officials to help retain and secure business for JLTSL and JLT Re Colombia.

These are the key messages we have taken from the final notice:

Front line staff red flag awareness

First line staff need to be on top of risks and see themselves as the primary risk managers across an organisation – in every jurisdiction you operate in. Firms should ask themselves whether their front-line staff, particularly those involved in the negotiations process in high-risk countries are equipped (knowledge and incentive) to identify and where necessary escalate red flags through effective group-wide procedures and delivery of case study-based training.

Information sharing

The other Group entities did not disclose all relevant material information about the overseas introducer to Group financial crime or local JLTSL financial crime for review. Had information flowed more efficiently across Group, JLTSL may not have been blind to the risks crystalising in Colombia. Firms should ensure information sharing requirements across Group are clearly understood – particularly in respect of financial crime risk and encourage a pro-active information sharing culture across group entities.

Monitoring and oversight of introducers

JLTSL did not consider or approve the onboarding renewal of the relationships with overseas introducers engaged by another group entity where the introduced business was subsequently placed by JLTSL in the London market. JLTSL relied on other JLT Group entities and JLT Group financial crime team to approve and monitor relationships and did not carry out any additional monitoring or oversight.

Firms should assess the adequacy of their monitoring and oversight of introducers processes, considering the following:

• Is the methodology used to monitor and maintain oversight held to the same standards across the group part of your assurance review processes?

• Do you have a clear and transparent view of processes conducted elsewhere in the group (or via third partied) upon which you rely?

• Does the KYB periodic and trigger event review process enable the first line to make well-informed, risk-based decisions on whether the introducer relationship remains within risk appetite?

• Where the introducer is subject to negative news, how do you keeping apprised of the situation happening overseas – are you receiving the information you need to make risk-based decisions on whether to maintain the introducer relationship?

• Does the MI senior management receive enable them to maintain sufficient oversight over introducers?

Introducer approvals

Despite the heightened bribery and corruption risk posed by the overseas introducers to JLTSL, there was no process in place to ensure approval of the introducers KYC by JLTSL’s board KYC sub-committee.  Firms should assess whether they have a robust process in place to ensure all overseas introducer relationships are approved through the entity they are booked and carry out testing on the process to assess its effectiveness.

Culture

And, as with any of these FCA penalties, it’s essential to think about culture. All the processes, systems and controls in the world will be ineffective if the culture isn’t aligned to doing the right thing.

The final notice doesn’t reference culture at JLTSL, so we make no inferences here. However we know from experience that this is a key root cause. Whilst its often intangible, and difficult to measure, senior management need to be honest with themselves about the culture they set – not only the “stated” culture, but also how their decision making and behaviours are interpreted by staff.

What does this mean for your introducer model?

The issues raised in this notice focus on the insurance sector, but they are directly relevant to all institutions which operate in or part of an introducer model.

To better understand the specific issues detailed in the final notice and to ensure you are on top of your introducer related risks, please get in touch and have a conversation with us: contact@avyse.co.uk