The report’s recommendations cover a number of areas, including culture and strategy, monitoring and reporting, investor engagement, policy formation and employee training, and philanthropy.
A new report from the UK Independent Anti-Slavery Commissioner draws attention to how the financial services industry can help address the issue of modern slavery. The report, “Preventing Modern Slavery & Human Trafficking: An Agenda for Action across the Financial Services Sector” (the Report), aims to sound “a call to action for the industry”. The Report, which was released on 18 January 2021, is the result of a research and outreach project led by Themis in partnership with the Independent Anti-Slavery Commissioner’s Office and TRIBE Freedom Foundation.
As the Report notes, in relation to financial services, modern slavery is less overt and usually refers to employment of low skilled contract workers such as cleaning or catering workers.
The Report found that currently a small number of financial services companies are actively managing risks and engaging with clients and other stakeholders on the issue of modern slavery. In particular, the Report pointed to the following research statistics:
- Thirty percent of financial services employees do not believe modern slavery happens in the UK. Forty-five percent of board level management and directors agreed with this statement.
- Forty-three percent of board level managers and director level employees either did not know whether their organisation had a modern slavery policy, or confirmed that their organisation did not have one.
- Sixty-eight percent of financial industry employees did not believe the issue of modern slavery had been raised more than “a few times” by senior management in the last 12 months. Seventy-one percent of employees said that they had not participated in any form of training with their current employer regarding modern slavery.
Based on these figures, the Report concluded that awareness is low among senior employees, procedures for reporting modern slavery are not widely implemented, and there is limited employee training on modern slavery.
The Report also identifies a number of risks that may apply to financial companies arising out of modern slavery concerns, including:
- Legal risk, in relation to the Modern Slavery Act.
- Regulatory risk (as modern slavery is a predicate crime to money laundering).
- Reputational risk (given the exposure of investors and lenders to reputational damage).
- Customer risk (as customers increasingly expect financial institutions to help protect the most vulnerable populations).
- Financial risk (given that all the aforementioned potential risks are likely to have a material business impact).
- Governance risk (as management of modern slavery issues may be an indicator of wider governance standards).
The Report makes a number of recommendations for how financial companies can help address modern slavery, including in the following areas.
Culture and strategy
The Report calls on financial company CEOs to put modern slavery issues on their agendas, which would help set the tone across the industry. Board members should also be fully cognisant of the contents of the disclosures and of the responsibilities made under the Modern Slavery Act. Financial companies should incorporate modern slavery concerns into existing risk assessments whenever possible.
Monitoring and reporting
According to the Report, companies should map and monitor direct risks by performing risk assessments of staff, suppliers, and business partners. These risk assessments should review processes relating to suppliers, while also prioritising areas of geographical and sector risk across an organisation’s supply chain. Companies should publicly report all actual and suspected cases of modern slavery.
The Report recommends that investment companies incorporate modern slavery elements into enterprise-wide Human Rights Due Diligence frameworks. In addition, lenders and investors should require proof that modern slavery is not present as a pre-condition to any dealing with a particular company. Investors should develop a risk tolerance map outlining both their risk appetite and a set of action protocols. They should also regularly engage with companies and work with affected business to manage risks.
Detection and disruption
According to the Report, investment companies should incorporate modern slavery considerations in anti-money laundering and terrorism financing control frameworks, while also making modern slavery issues an integral part of policy formation and mandatory training. Additionally, they should conduct company-wide modern slavery risks assessments focusing on financial crime risks.
Empowerment and support initiatives
The Report recommends that retail bank employees be trained to look for wider patterns of suspicious activity. Additionally, retail banks should facilitate access to bank accounts and ongoing support services to survivors of modern slavery. The Report also encourages banks to consider supporting charities that work to address modern slavery.
Latham & Watkins will continue to monitor developments in this area.
This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.