Insurance broker gets record fine for failed financial crime control

JLT is a wholly owned subsidiary of the JLT Group, that provides insurance, reinsurance and employee benefits advice and brokerage services, for which it is authorised by the FCA. As part of the services offered, JLT works with overseas insurers wanting to place business in the London reinsurance market. To facilitate this, business is introduced to JLT via overseas introducers, who are paid a percentage of JLTs commission for the London market placements.

The FCA’s view on overseas introducers is that they potentially present a higher risk of financial crime.  Some ‘red flags’ are:

• connections with overseas insurers and public officials;
• where the country from which they operate is considered “high risk”;
• where commission levels are unusually high; and
• where the introducer is paid commission before premiums are paid or on the instruction of a third party.

The FCA has identified JLT’s failings in that it did not ensure proper onboarding processes were in place when onboarding overseas introducers; noting also that there was too much reliance on the wider group’s processes. JLT failed to consider whether any additional safeguards were required where it was placing business introduced by overseas introducers in the London market. As a result of these failures, JLT were found to have breached Principle 3 of the FCA’s Principles for Business, which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems in place.

The FCA considers that JLT should have:

• brought any red flags to the attention of the group’s KYC committee and / or financial crime team;
• ensured other group entities disclosed all material information about an overseas introducer to the financial crime team for consideration; and
• considered whether additional monitoring and oversight was required, in accordance with its own processes.

The initial penalty of £11, 259, 500 was reduced by 30% due to JTL’s agreement to cooperate early in the investigation. The fine is the second penalty handed down to JLT, which found itself in a similar situation back in December 2013, where the FCA fined it £1,876,000 for a similar failure to control risks on corruption, bribery and overseas third parties.

What does the fine mean for other insurance businesses?

The FCA’s action is a reminder for insurance brokers and others to take steps to organise and control their business risks effectively, in order to prevent or mitigate against the risk of financial crime. In this case, the FCA stated the organisation “missed opportunities to evaluate the bribery and corruption risks posed.”

The FCA has published several reports and guides to assist commercial insurance brokers in managing their bribery and corruption risks. These include a report in 2010 focusing on reducing the risk of wrongful payments to third parties to keep business, and a report in November 2014 which provided examples of good practice for commercial insurance broker firms on the management of this issue.

In its Final Notice to JLT, the FCA considered there to be no excuse for the failings, given the amount of support and guidance available to firms when reviewing their financial crime procedures.

If you would like more information or advice on how to ensure you are meeting the FCA’s expected financial crime standards, please do get in touch with Sarah, Charlotte or Phillippa from the Capital Regulatory Investigations Team.