Banking StandardsWritten evidence from Simon Hussey

Banking Standards Inquiry

RE: PCBS. How the FSA’s failure to assist whistleblowers in financial services (the FSA has never acted, assisted, intervened or sanctioned a firm that fired a financial whistle-blower) is putting the UK financial system at risk. And how the PCBS can make a simple recommendation in its report finding—whereby ALL financial whistleblowing cases are required to be heard by a tribunal hosted by the FSA (or PRA) ahead of any employment tribunal proceedings (ala General Medical Council) in order to assist regulators and establish the merits and bone fides of so-called “Whistle-blowers” claims. The intent would be to give regulators (FSA or PRA) an inside seat at the workings and alleged whistleblowing at regulated firms in order to “nip problems in the bud” and save taxpayers from bigger issues and later bailouts.

1. Background and history of frauds and financial scandals in the UK:

I. ***

II. Most Frauds or scandals in financial services are uncovered by insiders—employees of the firm and not by regulators or by City analysts. The US frauds at Enron (2001—$30 billion), WorldCom (2002—$50 billion plus) were uncovered by diligent employees. Indeed the auditors (Arthur Anderson was complicit in the Enron fraud).

III. The UK and therefore FSA regulated entities have experienced many financial services frauds: BCCI (1991 £20 billion collapse); Barings (1995 £1 billion collapse), Sumitomo (1995 $1.8 billion loss “Copper scandal”); Credit Suisse (2008—€3.5 billion mismarked CDO book); UBS (2011—$2 billion-$6 billion) with the current Kweku Adoboli case, where all unearthed by insiders NOT regulators.

IV. The recklessness of RBS (required a £47 billion UK cash injection) and HBOS (required a £17 billion UK cash injection) was well known to insiders who were silenced, pushed out or fired (Paul Moore—Head of Risk at HBOS evidence to TSC).

V. The National Audit Office (NAO) calculated the current financial crisis has cost the UK £67 billion in direct equity investment in saving banks like RBS, HBOS, Northern Rock, and £1.2 trillion (peak) in indirect subsidies to the banking sector via programs such as the £250 billion asset protection scheme (RBS), UK issuing guarantees to banks, and the Bank of England “repo” facilities. (NAO July 2012: HM Treasury Resource Accounts)

VI. A Freedom of Information (FOI) request by the BBC to the FSA revealed—the FSA has never intervened in a financial whistleblowing case or sanctioned a financial firm that fired a whistleblower, since the introduction of Public Interest Disclosure Act (PIDA) 1998. So in the FSA’s discredited eyes, we have a 100% perfect financial system. It’s as if the financial crisis, Northern Rock, RBS and HBOS bailouts, LIBOR scandal, PPI and now SME interest rate swap scandals never happened.

VII. The FSA’s stance is in direct contravention of its own handbook “The FSA encourages firms to be responsive to whistleblowers under the Public Interest Disclosure Act 1998—law since 1999. It can help nip problems in the bud, preventing or limiting any harm to the firm or its customers”. “The FSA would regard as a serious matter any evidence that a firm had acted to the determent of a worker because he had made a protected disclosure about matters which are relevant to the functions of the FSA”.

VIII. Lord Turner, executive chairman of the FSA declined a BBC interview to defend the FSA’s record (or lack of it) on whistleblowing in the financial sector.

BBC Newsnight link:

http://www.youtube.com/watch?v=_Hz8PinmVEA&feature=youtu.be

2. Why Nobody Should Whistle-Blow in UK Financial Services:

I. Financial services companies and UK law discourages whistleblowing. Banks adopt brutal tactics to discredit and discourage whistleblowing in the financial sector:

(a)Cost—legal fees incurred by an employee are circa £400,000—£750,000 (post tax income) and non-deductible unlike those incurred by the bank which are tax and VAT deductible. Banks can offset their legal cost as a business expense, whistle-blowers get no such tax relief and all legal costs are from post-tax income in effect doubling their costs (ie £400,000 legal fees mean a whistle-blower must have £800,000 tax earnings or savings.

(b)Financial—squeezing the employee by withholding past deferred compensation even if due as a bargaining position to dissuade the any would be whistle-blower.

(c)Reputation—destroying the employee’s reputation in the press

(d)Evidence—Banks will withhold and manipulating evidence.

3. Why Banks and the BBA (British Bankers’ Association) Cannot be Trusted:

I. It is a matter of public record that LIBOR scandal was BBA member banks lying to the BBA on the most critical global interest benchmark—LIBOR. The scandal and subsequent fines are proof that banks cannot be trusted. The BBA is a discredited organisation looking for role. Its suggestion to the PCBS that it is now fit to police a register of so-called “rogue bankers” is ludicrous and laughable. There should be only one register of “approved persons” and that should reside with the FSA or its successor PRA.

II. Recent disclosure of the pressure Barclay’s ex-chair Marcus Agius, as a BBA member put on Angela Knight—then BBA CEO, suggests banks will attempt to exercise undue influence.

4. How Current UK Employment Law Requires all Financial Whistleblowing Cases to Come Before Financial (Challenged) Employment Tribunals:

I. Presently, UK employment law requires all whistleblowing cases (as they are an employment matter), to be heard by employment tribunals. Employment tribunals are ill equipped to deal with financial whistleblowing—being staffed by part-time, often county solicitors, doubling as chair, a so-called business man and former union member or worker. From actual experience, few would know the difference between a CDO and a UFO, a pivot hedge and a hedge fund.

II. Often, the sole financial experience of a tribunal—is having a bank account or mortgage. However well-intentioned these individuals are, the current financial crisis has manifestly demonstrated, that in many cases, the management of major financial institutions did not or failed to understand the businesses and risks they were running. It is a matter of record that NO UK bank CEO has survived the crisis—Peter Sands of Standard Chartered being the exception.

5. What the PCBS and do to Remedy the Situation:

I. The PCBS, in its findings could encourage a proactive FSA or Bank of England Prudential Regulatory Authority (PRA), without ANY change in law, by recommending in its report—that all financial whistleblowing cases first be held in front the FSA (or PRA), in a system akin to doctors being forced in front of the General Medical Council (GMC) for “disciplinary and professional mis-conduct” hearings. The purpose would be for all parties, including the FSA, to hear the whistleblower’s evidence and the firm’s defence, to opine, if, it is relevant to the “functions and activities of the FSA”. This would give the FSA (or PRA) a “window” and “ring side” seat on the activities happening in the firm. The FSA report would then be available for any subsequent employment tribunal hearings as evidence to assisting the employment tribunal in its findings. This would greatly ease time wasting by non bona fide whistleblowing cases. To date, No financial whistleblower has won a UK employment case.

23 October