Khepri's A to Z: Gifts and Hospitality - Buy and Sell-Side Compliance

Background

Bribery continues to be a persistent issue within the financial services industry, eroding trust and undermining the integrity of institutions. The FCA considers that implementing robust process surrounding inducements (including gifts and hospitality) is crucial to curb this unethical behavior, and foster a culture of transparency and accountability within firms.

Why bother focusing on gifts and hospitality policies

Bribery poses a significant threat to the reputation and stability of financial services firms.

Bribery includes situations where individuals offer bribes to gain preferential treatment, secure lucrative contracts, or influence decision-making processes.

Such acts compromise fair competition, create conflicts of interest, and expose firms to legal and regulatory risks.

Gifts and hospitality play a complex role within the financial sector. While these practices can be legitimate and promote business relationships, they also carry the potential for abuse. Unmonitored and undisclosed gifts can easily transition into bribery, exerting undue influence and compromising the impartiality of decision-makers.

What does the FCA expect?

Firms need to ensure that there are appropriate processes in place for overseeing the provision, and receipt, of gifts and hospitality.

Controls such as registers and pre-approval thresholds serve as crucial tools for mitigating bribery risks within financial services firms. Effective implementation of registers requires individuals to disclose all offers and receipts above a certain threshold, allowing firms to scrutinise the legitimacy of any gift and hospitality.

By mandating the reporting of such interactions, firms can identify potential conflicts of interest, assess the appropriateness of gifts, and prevent bribery.

It is important that firms maintain controls that promote transparency and accountability. By documenting and monitoring all exchanges, organisations create an auditable trail of interactions, ensuring that all parties are held accountable for their actions. The registers also act as a deterrent, discouraging employees from engaging in bribery due to the fear of detection and consequences.

A comprehensive gifts and hospitality policy, and corresponding anti-bribery culture, allows firms to identify potential conflicts of interest. By analysing the nature and frequency of gift-giving and hospitality events, organisations can proactively address situations where employees may be compromised by personal relationships or favours, ensuring decisions are made in the best interest of clients and stakeholders.

 What are the benefits to you?

The implementation of effective controls help financial services firms meet regulatory requirements and manage bribery-related risks. By maintaining accurate records, firms can demonstrate their commitment to anti-bribery measures during regulatory audits and investigations. Additionally, effective risk management reduces the likelihood of legal penalties, reputational damage, and the erosion of public trust. Effective controls act as a catalyst for cultivating an ethical culture within financial services firms. It sends a strong message that bribery will not be tolerated and reinforces the importance of integrity, fairness, and ethical decision-making. By consistently enforcing these measures, organisations can build trust with clients, regulators, and the public.

A robust anti-bribery and inducements framework that includes controls for gifts and hospitality registers are indispensable tools for financial services firms aiming to combat bribery. By promoting transparency, accountability, and ethical conduct, these can create a robust framework that safeguards the industry's reputation and fosters a culture of integrity.