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PwC comments on impacts of the Bribery Act for financial services companies

The final version of the guidance on anti-bribery policies and procedures was issued by the Government (pursuant to section 9 of the Bribery Act) today (Wednesday, 30 March).  The Act will come into force on 1st July 2011.

 

Commenting on the implications for financial services companies, Sian Herbert, partner, PwC, says: "The acceptance of the need for a proportionate and risk-based approach is good news for financial services companies as it recognises their global reach and the complex interactions they face. This is in line with the approach currently promoted by the Financial Services Authority and means that companies can confidently and more easily embed their response to the Bribery Act into their existing processes and controls.

“Despite this, the prevention of bribery cannot be a box-ticking exercise and financial services companies that have not already started to prepare have left themselves with a lot to do. Companies should not underestimate the difficulty of embedding the appropriate behaviours globally and across their businesses. Even if companies consider their staff to already behave in an ethical way, the complexity of ensuring these standards are consistent in all operations will be a challenge.

“This should be a cause for urgent action. The key thing is to have a clear picture of the risks facing the business and to create some real momentum behind the development of an anti-bribery programme. The recognition of the importance of control in relation to joint ventures and other investments, and the clarification around associated persons and corporate entertaining will be particularly well received by financial services institutions.”

Compared with the draft version issued for consultation in September 2010 the final version of the guidance has retained its generally high level, principles-based and non-prescriptive character.  The final version of the guidance is, in PwC’s view, a significant improvement and we are pleased that many of the concerns we raised in our response to the consultation draft have to a lesser or greater extent been addressed.

Among the more notable amendments: there is a far sharper focus on the need for a proportionate, risk-based approach to the design of mitigating policies and procedures. There is more explicit recognition that smaller companies may require less sophisticated programmes, while at the same time acknowledging that the level of risk is not necessarily proportionate to size.

There is also more clarity in the guidance concerning what might constitute acceptable hospitality and promotional expenditures, which should help to allay some prevalent concerns in this area.

In addition, there is more guidance about issues such as what constitutes a “commercial organisation” and how far the jurisdiction of the Act extends, for example in relation to overseas companies with UK connections, while the guidance on the level of due diligence required in relation to third parties is much clearer and more helpful. In particular, there is recognition of the practical issues arising out of the degree of control exercised over a third party.  It is also acknowledged that most conventional suppliers of goods are unlikely to create significant risk and will not need anything like the same level of due diligence as those who clearly act in some way on the company’s behalf.

Likewise there is further clarification on corporate structures such as joint ventures where, again, the issue of the level of control is important.

There is also specific reference to arrangements in the nature of “offset” (although the term itself is not used), which makes reasonably clear that such arrangements, where these are open and transparent, permitted and not for individual personal gain, are unlikely to engage the Bribery Act.

There is further discussion of facilitation payments, including an acknowledgement (and some assurances about prosecutorial discretion) of the issue of situations involving duress and threat to life, limb or liberty.

The six “principles” have been partially reconfigured and are now: Proportionate procedures (a new term which now subsumes two of the old principles, namely: clear, practical and accessible policies and procedures; and effective implementation); Top level commitment; Risk assessment; Due diligence; Communication (another new term, although the general concept was, of course, embedded within the old framework); and Monitoring and review.

It is not entirely clear why the Government felt the need to reconfigure the six principles in this way. The issue of proportionality is certainly of central importance, but this could have been dealt with by embedding the concept within the existing principles.  As a stand-alone concept, proportionality sits awkwardly with the other principles, as it is a characteristic rather than a practical step or series of steps as the other principles are.  This is accentuated by the fact that the list of examples given under the heading “proportionate procedures” overlaps considerably with those covered under other principles.

Fundamentally, PwC’s view is that the key areas of focus for effective anti-bribery policies and procedures remain substantially unchanged, although we do consider that the guidance is now clearer and more helpful in terms of possible practical steps. The “risk assessment” area, whilst undoubtedly improved, could have been further enhanced by more clarity, for example, about the need to map risks in a systematic way on to mitigating controls.

PwC also notes that the appendix with case studies has been extended to include more illustrative examples.  Importantly, these have been re-cast to be simpler, forward-looking scenarios rather than the retrospective, wise-after-the-event narratives that were there before.  What we now have is likely to be more useful to readers of the guidance, although any case studies are subject to the inherent limitation that they can only be indicative and that it is impossible to legislate for every eventuality.

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