Like most industry publications, Bridging & Commercial followed the countdown to The Bribery Act 2010’s launch with vigour, expecting that the prospect of 10-year prison terms and unlimited fines would be enough to change the way lenders ‘tempt’ and ‘reward’ their brokers.
However, three weeks since the Act came into force, it seems little has changed. You can still win an iPad2 by placing business with lender A, get £500 cash through forwarding a deal to lender B and enter into a prize draw for a brand new mini through lender C.
To laymen such as myself, these types of offers appear to be ‘bribes’. However, I have yet to hear of any of the lenders in question being taken to court over their competitions or offers, which leads me to conclude that my views on what constitutes a bribe were incorrect and that, despite the hype, the Act will not have the impact which we expected it to have.
Tim Hayes of Pannone LLP explained: “An individual or company is guilty of bribing another if they have given a financial or other advantage to them with the intention of inducing a person to perform improperly a relevant function or activity or rewarding them for having done so.
“Therefore, in the examples you mention above, one would initially have to establish whether or not there was, in fact, ‘improper’ acts taking place.”
Rekha Chelvendra of Brightstone Law LLP added: “The exact definition of a bribe is not clear under the Bribery Act 2010, as the nature of the offence means that each case must be judged on an individual basis. As a result, it is seemingly impossible to say whether a cash incentive from a lender is necessarily a bribe or not. This will depend on the case.”
Rekha went on to explain that, as in assessing whether a corporate hospitality event was considered a bribe, one would have to assess what was reasonable and ‘normal’ in the given sector.
On hearing this, it became easy to understand why lenders are unconcerned over adding their offers and competitions to the sea of those already out there.
Gavin Diamond, Finance Director at Cheval, said: "Provided that the sums involved are reasonable and proportionate, I don't beleive that this practice is caught by the Bribery Act. It's merely a reasonable incentive to do business, much like paying a procuration fee."
When it comes to override commission schemes though, the situation may be a little more dubious. These bonuses - paid to brokers for introducing a certain amount of business to one lender – certainly appear more likely to induce a broker to perform an improper function.
Compliance expert Ray Cohen explained: “The FSA have accepted competitions and various other commissions offered by lenders to their brokers for quite some time, provided that they are transparent.
“In the case of override commissions however it is very difficult to support transparency, as we rarely know how much each broker is benefitting through the commission.
“Furthermore, the value of the override commission to the broker is usually substantial and therefore much more likely to encourage them to place a deal with a lender offering such a bonus, to the detriment of the borrower.”
At the moment, since the Bribery Act does not affect historic cases (those which occurred prior to July 1 2011), we cannot be sure whether competition incentives, cash bonuses, or even override commissions will fall foul of its terms.
Experts’ opinions are divided and confused on the issue, with most being unable to draw any firm predictions as to what future case law will hold.
A view common to most though is that whatever the outcome may be, it will take many, many years before any precedent is set.
In the mean time, lenders are left to interpret the Act themselves and to balance the potential risk of implementing an override commission with the rewards which it brings.
By Katie-Jill Rowland
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