Banking StandardsWritten evidence from Ian Taplin
Preamble
1. Submitted by Ian Taplin, ex Lloyds Bank Wealth and Private Bank (2005–10) and Founding Member of Whistle blowers UK (WBUK); Banking Member.
2. Part 2 of this Submission relates to the call for evidence and testimony—specifically to Item 5.
Item 5; “What policy measures may be considered” to:
(a)“Strengthen whistle blowing protection for whistle blowers acting in the public interest within retail banks”.
(b)“How to make whistle blowing easier within retail banks”.
3. Part 1 submitted on 14 January 2013 covered 4b—“arrangements for whistle blowers.”
(Part 3 on the subject of mis-selling to be submitted shortly)
4. Chairman of the Parliamentary Commission on Banking Standards:
“We aim to produce some practical proposals for improved standards and culture, contributing to rebuilding trust in the banks and restoring pride among their employees, the majority of whose reputations have been wrongly impugned. Only when confidence in the industry recovers will it be able to play its full role in generating economic growth.” Andrew Tyrie MP. (Note 1)
Summary Précis
Banking Whistle Blowers remain unprotected because the UK legislation PIDA 1998 and FSMA 2000-have conflicts of interests.
Public Interest Disclosure Act 1998 (PIDA) needs strengthening:
Abandon Government’s insertion of “public interest test” amendment in the Enterprise and Regulatory Reform Bill.
Embed vicarious liability within PIDA.
Consider financial incentives/compensation for whistle blowers and their supportive organisations.
Reinforce PIDA non-disclosure agreements as null and void.
Consider Registration as a simple no cost solution.
Consider an Ombudsman.
Financial Services and Markets Act 2000(FSMA 2000), and Financial Services Authority (FSA) Regulators.
FSA statutory objectives’ have conflicting obligations which directly impact upon whistle blowers.
The need to clarify mis-selling and fraud.
FSA regulators are inexperienced, insufficiently remunerated and vulnerable to the “revolving door” syndrome.
The UK has allowed regulatory capture and such apparent regulatory seizure deters whistle blowers.
Banking Conduct
CEO’s can be perversely incentivised to be hostile to whistle blowers.
Widen claw back provisions.
Whistle Blower Organisations connected to Banking.
Whistle Blowers UK is a voluntary self-help group with very modest independent funding.
Public Concern at Work is funded by corporations such as Lloyds Bank and NHS agencies.
Consider funding whistle blowers organisations from fines imposed on Banks.
The evidence suggests that the public is strongly supportive of whistle blowers in the UK.
Part A—Conflicts of Interest
Introduction; Whistle Blowers remain unprotected because of UK legislation which has conflicts of interests
1. Any whistle blowing action involves three core participants:
The whistle blower—whom is a person and is a voter and whom seeks protection to be provided by society.
The corporate organisation—a corporate non person with no vote whom seeks protection to be provided by society.
The society, whose citizens by consent form a democracy to seek to provide protection for its own mutual well-being.
2. The word “whistle blower” was first used by Ralph Nader whom described the legitimacy of the whistle blower acting because “the public interest outweighs the organisation’s interest.”
(a)The “organisation’s interest” may defend itself against whistle blowing actions as described by General Motors Chairman James Roche -whom warned against Ralph Nader’s whistle blowing in 1971.
(b)“Some critics are now busy eroding another support of free enterprise—the loyalty of a management team, with its unifying values of cooperative work. Some of the enemies of business now encourage an employee to be disloyal to the enterprise. They want to create suspicion and disharmony, and pry into the proprietary interests of the business. However this is labelled-industrial espionage, whistle blowing, or professional responsibility—it is another tactic for spreading disunity and creating conflict” (Note 2)
(c)The third core participant is the society in which the whistle blowing action is taking place. The society—(whose citizens by consent form a democracy to seek to provide protection for its own mutual well-being)—and its own democratic robustness will reflect the rules and law within the society, and will determine the extent to which legitimate dissent is not only tolerated but encouraged.
3. These three core participants in the whistle blowing action are acting to defend their perceived respective interests and may or not share these interests with the two other participants.
(a)For example the whistle blower as a person may be strongly protected and defended by the society—whose democratic robustness is of a high quality—which upholds the rights of the whistle blowing individual whom is the voter—such as in Norway.
(b)In 2010 the Tavistock Institute commissioned Norwegian Academics Marit Skivenes and Sissel Trygstad to study why Norway appeared to have effective whistle blowers protection in their public sector:
“A very high proportion of employees blow the whistle when they experience misconduct, and the majority of these people receive positive reactions. Furthermore, a majority of the whistle-blowers report that the conduct that led them to blow the whistle improved. These positive findings are different from those reported in international research displaying that whistle-blowing is difficult, often results in retaliation and is rarely effective.” (Note 3)
(c)However in a society whereby corporate interests are seemingly stronger—such as in the US or UK (as compared with Norway)—the lack of whistle blower protection is a reflection of a society whose democracy is of a less robust nature; and reflects the extent to which the society enables non-voting corporate interests to hold and use power.
(d)This three core party characteristic of the whistle blowing action can therefore expose conflicts of interest between whistle blowers, whom are citizens and voters, and corporate organisations whom are non- persons and do not vote ;and in such conflicts can reveal where the real power lies within a society.
(e)However given the nature of our society, we, the voting citizens form corporate organisations to provide us with employment and sustenance-and to deliver governance, schools, hospitals, defence and welfare—to survive and protect our own immediate families and communities -with a collective mutual will.
(f)So the corporate organisation which the citizens and voters have themselves created, also seeks protection to survive and safeguard its corporate organisational interests. The voting citizens themselves created the corporate organisations, and within the society they work in the corporate organisations, they receive income and receive protection from the corporate organisations—for their own survival. They may invest their capital in the corporate organisations and own a portion through shared capital (shares) and by the prosperity of the corporate organisation receive income when retired through a pension.
(g)So society organising a democracy to govern itself must ensure the protection of the voting citizen’s interests and must also protect the corporate organisations which have been created by the voting citizens themselves to enable the society to survive, self-govern and prosper. In this way the society must properly align these interests and then ensure a workable balance between these interests in order to exercise the collective will.
(h)Why therefore are there inherent conflicts of interest existing today when all three core participants should in theory be functioning together in a balanced fashion with a collective will?
Because for a variety of reasons our democratic society has become unbalanced and the three core participant’s interests which should be aligned—have become mis-aligned.
(i)Hector Sants the former CEO of the regulator—the Financial Services Authority (FSA)—described that the mis-aligned “balance of power” was the reason why Lloyds Bank resisted the FSA for 4 years in refusing to cease its predatory selling activities of PPI to the UK citizenry. When discussing the failure of the FSA to supervise the UK Banking sector, in his oral evidence –he stated that the FSA simply did not have sufficient legal powers to stop banking abuses. (See Note 4)
(j)If one reviews the evidence given to the Commission by Helen Weir (ex-Retail Director Lloyds Bank), Phil Loney (ex-Insurance Director Lloyds Bank) and Carol Sergeant (ex-Chief Risk Officer Lloyds Bank) on 11 January 2013; it is evident and clear that these Senior Bankers believed that they had sufficient corporate organisational power to resist society’s regulators—the FSA—because society’s laws were seemingly not robust enough to enable the regulator to overcome such corporate power.
(k)So Mr Sants was claiming that society (through our democracy) had failed to provide sufficient protection through law to safeguard the interest of its own voting citizens and had failed to ensure a proper alignment and workable balance with the corporate organisations—which are the banks.
As Mr Sants has suggested—the “balance of power” had been allowed to become mis-aligned which has created conflicts of interest within society—and which society has itself become more unbalanced resulting in society creating laws which reflect these imbalances and conflicts of interests.
(l)But the society through government did not appear to act to rebalance and re-align the three core participant’s interests—and did not seek to resolve these conflicts of interests.
(m)The two key rules created by society relating to the banking sector and whistle blowing issues are examples of law which reflects these conflicts of interest and exacerbates the imbalances and mis-alignments—already present within the society—when these rules were created:
Public Interest Disclosure Act 1998.
Financial Services And Markets Act 2000.
Part B—Public Interest Disclosure Act 1998 (PIDA)
Introduction; Public Interest Disclosure Act 1998 (PIDA) needs strengthening.
“The legislation is considered by banks and the regulator as voluntary and as an example of light touch regulation—easily ignored”
1. The FSA only encourage Banks adopt processes to encourage whistle blowers-and there is no legislation which compels Banks to comply with PIDA. As Part I of this submission sets out—the FSA guidelines on banks ensuring whistle blowers’ protections—are not obligations.
The FSA have admitted that they have never sanctioned a Bank who has dismissed a legitimate whistle blower. (See Note 5)
2. PIDA is a compromise brokered by society through Parliament in an attempt to seek to balance the interests of the citizen voter-whom is the whistle blower, and the interest of the corporate organisations. PIDA 1998 was enacted as legislation via a Private Members Bill and the Labour Government insisted that PIDA only provide rights and not obligations upon the whistle blowers and corporations. Therefore PIDA does not protect whistle blowers as it is not an obligation placed upon corporate organisations.
(a)A right is a voluntary action within law with no compulsion—whereas an obligation is a legal requirement—by which non-compliance of any legal requirement may trigger a legal sanction.
(b)PIDA was only allowed to become UK law because the Government yielded to lobbying from corporate organisations—which ensured that the interests of the corporate organisations were safeguarded within the legislation.
(c)The corporate organisation succeeded in ensuring that if a whistle blower had good reasons to raise concerns—that he would be expected-in the first instance report his concerns use the internal processes made available to him-by the corporate organisation.
(d)The result of this PIDA requirement is that the whistle blower has been encouraged to report internally without adequate protection from PIDA—and thus exposes himself to the corporate organisation’s power to protect its own interests which may be threatened by the revelations being reported by the whistle blower. The corporation will, as a natural response, seek to deal with any threat—which often means acting in a deliberate and managed fashion—to discredit the whistle blower whom threatens their own interests –which are often commercial interests.
(e)Therefore PIDA is counter-productive and reflects the power of the large corporate organisation—being more powerful than the citizen voter whom is the single person and whistle blower.
(g)PIDA is an example of weak legislation created by society whose good intentions have been compromised by powerful corporations whom use such power to lobby legislators; and thus society itself allows imbalances and mis-alignments to be reflected in legislation.
(g)Therefore whilst PIDA is somehow considered by some—as an example of effective legislation—WBUK contend that it does not protect whistle blowers and is aligned more in favour of the corporate organisation-and we believe it should be reviewed.
3. The absence of effective whistle blowers in the Financial services sector demonstrates that PIDA is not functioning properly. Both Paul Moore and Martin Woods, prominent UK Banking whistle blowers are on record to claim that PIDA was not effective in protecting them—which must deter would be whistle blowers.
4. Yet this Government is seemingly working not to strengthen whistle blowers protection through PIDA—but is acting to weaken whistle blowers protection.
The Enterprise and Regulatory Reform Bill has been introduced in Parliament which seeks to “cut red tape” and reduce onerous regulations on businesses—which may impede economic growth. But an amendment attached to the Bill is dangerous to the welfare of current and would be legitimate whistle blowers.
5. Remedies and solutions:
(a)The Enterprise and Regulatory Reform Bill (ERRB)
ERRB is an attempt by this Government to reduce “red tape” and regulations which are imposed upon industry for a variety of reasons.
(1)Whilst this is a laudable mission to free up resources for growth and job creation—there is a dangerous amendment within ERRB which seeks to place additional burdens on legitimate whistle blowers and as a result—will weaken whistle blowers protection.
So this government is not seeking to strengthen whistle blowers protection—it seeks to weaken it.
(2)Currently the whistle blowers in seeking protected disclosures through PIDA must generally prove he is acting in good faith; whilst the proposed amendment contained in the ERRB seeks to insert a “public interest test.”
This insertion of a “public interest test” by the amendment by which a whistle blower must prove is served by his actions—if written into the legislation—will discourage whistle blowers by creating further hurdles.
Why?
(a)How many different definitions of what is the “public interest” will be declared by corporations, lawyers and judges? How will these myriad definitions be interpreted in the whistle blowing processes within corporations and within the Employment Tribunals System; whereby a whistle blower is seeking redress for unfair dismissal by a corporate organisation through a PIDA claim?
The legal and intellectual “debatefest” will only serve the legal profession and will intimidate a would be whistle blower-whom will be vulnerable to varying interpretations and varied advice offered up by the legal profession.
(b)How will regulators when considering their own legal guidelines in their supervisory duties, interpret the public interest test when approached by a whistle blower whom is acting in the “public interest”?
What exactly is the “public interest?”
Does the regulator the FSA/FCA in interpreting PIDA in the “public interest”, apply more weight to the whistle blower whom is alleging widespread mis-selling and seeks to protect the welfare of the citizen consumer?
Or does the regulator the FSA/FCA , in the “public interest”, apply more weight to the corporate organisation whose activities of widespread mis-selling when subject to regulatory enforcement actions and fined—would suffer destabilising sanctions which damage confidence in the integrity UK Banking industry-and thus weaken the UK economy?
(3)Public Concern at Work-UK’s Whistle Blowing Charity state:
“If the legislation is to include a public interest test then it would be appropriate to consider this in conjunction with the good faith requirement in PIDA, rather than placing an additional hurdle on would be whistle-blowers. To address this finely nuanced issue properly requires consultation and the current proposed amendment would need to be reversed”. (Note 6)
WBUK share PCAW’s view that the insertion of the “public interest” test amendment in the Enterprise and Regulatory Reform Bill should be abandoned.
The “good faith test” within PIDA should remain unimpeded.
(b)Vicarious Liability.
(1)The majority of WBUK members report experiences of their employers tolerating instances of colleagues intimidating, bullying, and victimising the whistle blower; and such behaviours are often seemingly standard practices carried out by the Senior Directors, themselves, within the corporations-including Banks.
(2)Public Concern at Work state:
“It surely cannot be right that an employer can fail to do enough to protect a whistle-blower from victimisation and yet altogether escape liability. To overcome this problem, we suggest transposing the existing tests from the Equality Act 2010 (sections 109–112 and section 40) into PIDA. This would also build a defence into the legislation for employers, as if they can show that they took reasonable steps to prevent the victimisation, they would not be liable.” (Note 7)
WBUK support this statement. Employers that tolerate victimisation bullying, threats and intimidation of whistle blowers must be made liable through a strengthened PIDA.
(c)Financial incentives or compensation to whistle blowers and their supportive organisations.
(1)At WBUK we have recorded that legitimate UK Banking Whistle Blowers, have in many cases—faced severe financial hardships and the destruction of their careers—which in some cases has led to family break ups, severe mental health problems and even suicide.
Yet PIDA has failed to protect these publicly minded citizens. So it is not unreasonable for society to consider a system which will underwrite the risks, taken by the whistle blower, whom is a person and voter—taken in the event that the whistle blower is proven correct in his allegations.
(2)In the US—the disincentive to whistle blow because of the risks to the welfare of whistle blowers—is now recognised. The False Claims Act 2010—enables Whistle Blowers to sue on behalf of the state if any Government Department has been defrauded—and can receive between 15%–30% of any fines/levies received.
Union Bank of Switzerland whistle blower, Bradley Birkenfield, received $104 million for assisting the US regulators identify US residents unlawfully avoiding US taxes in offshore jurisdictions.
(3)Within the US Financial Services Industry, the Dodd Frank Act 2010—provides for the situation, whereby whistle blowers who provide information that leads to a successful enforcement action of at least $1,000,000 to the SEC—will be compensated for the risks undertaken in their whistle blowing. The US regulator has recently announced that the first whistle blower has been awarded $50,000.
(4)Andrew Tyrie, Chairman of the Commission, stated in late 2012—that he had asked Martin Wheatley, who will head the new Financial Conduct Authority from April 2013, to examine “what incentivisation can you provide to whistleblowing without moral hazard?”
(5)Clearly the risks to a whistle blower’s own financial security, own career and personal life—should be recognized by society whose interests and welfare, the legitimate whistle blower is seeking to protect—by acting in good faith.
It is not unreasonable to suggest that the underwriting of such risks by society—should be enabled by any subsequent fine imposed by the regulators—upon the corporation whose mis conduct threatens the society’s welfare.
(6)The mechanisms put in place should not claim to “reward” a person (who has risked his career and personal and family life happiness)-but to “compensate” him for the risks he has taken for the public welfare and for the benefit of the society. The risks taken and the impacts upon his own career and well-being should be reflected within the compensation.
To offer compensation therefore reflects the personal risks undertaken whereas a reward might incentivise non-legitimate whistle blowers seeking to extract financial rewards acting against corporations for nefarious motives.
There are obvious potential pitfalls to a fair compensation scheme which must ensure the whistle blower is acting in good faith.
(7)Also the destination of the monies extracted and levied against the corporation should more fairly reflect the needs of society in protecting the whistle blower.
(a)It follows that a percentage of all fines levied should be awarded by society to legitimate whistle blowing organisations that participate and contribute to this society—whose work, mostly undertaken by volunteers—seeks to protect legitimate whistle blowers. Thus society is enabling a more level playing field in relation to countering the power of non-voting powerful corporations such as banking institutions; whom have deep pockets. (See below Part 6 “Whistle Blowers Organisations”).
(b)Thus the Prime Minister’s initiative of there being a Big Society and his encouragement of citizens whom follow his political leadership within society—is surely an endorsement of Whistle Blowers organisations such as WBUK; and WBUK should be encouraged to claim a percentage of future levies to help in their Big Society endeavours.
(d)Non-Disclosure Agreements
(1)Non-Disclosure agreements; also known as gagging clauses are, in theory, non-enforceable under Section 43J PIDA. In reality internal whistle blowers, whom sign a non-disclosure agreement do not generally break such agreements, as their own career prospects would be affected, as employers would question the trustworthiness of the whistle blower—as a future employee. Whistle Blowers may also fear a powerful corporate backlash which can be intimidating.
(2)At WBUK we have discreet Banking Members who chose not to disclose their membership of WBUK and chose not to divulge their reasons for their internal whistleblowing actions and who have signed non-disclosure agreements.
Some of these Members were in senior positions of responsibility within Banking and Finance institutions and signed non –disclosure agreements for “self-preservation”. Usually the Corporation for whom they had worked -will supply references which make no indication as to the real reason why the whistle blower is leaving the firm.
(3)If the whistle blower accepts offers of settlement (with a non-disclosure agreement)—soon after his whistleblowing actions he may be spared the expected corporate intimidation, threats, and bullying—and he may be able to find suitable work in a reasonable time frame.
Conversely, the more the whistle blower insists the corporation acts to comply with the rule of law –the more the corporation will appear to break the law in dealing with the whistle blower in a hostile manner.
(4)So in many cases, for example, WBUK Banking members have shared their own experiences within Whistle Blowers UK—that when they have reported their concerns (about possible corporate mis-conduct) to the relevant person within their organisation—they feel exposed and vulnerable. Some will admit they chose not to disclose their concerns in the public domain via the media—as they would be effectively self-harming.
(a)Despite the fact that the information they claim to hold about possible corporate mis-conduct should be in the public domain for the public’s welfare—some WBUK members do not share this sensitive information in the public domain—in order to protect themselves, their careers, their families and their hopes of a future life of happiness and security.
(5)Therefore the corporations ignore PIDA, which clearly states non-disclosure agreements are null and void (through Section 43J PIDA);and such corporate failures of recognition of the rule of law —towards the rules of society—reflect the imbalances within society and fails to protect the whistle blower (the person voter).
(6)Therefore PIDA should be revisited in this respect and enabled to give the clear and unambiguous message written in the text of the legislation—that non-disclosure agreements agreed with whistle blowers acting in good faith are unenforceable-should the whistle blower act to put relevant information in the public domain for the welfare of society.
(e)Registration as a simple no cost solution.
(1)There should be a mechanism to register a legitimate whistle blowing action when the whistle blower starts a formal action within the bank acting in good faith. This should have the effect of “insuring” the whistle-blower and may prevent corporate intimidation, threats, bullying, and dismissing whistle blowers—unlawfully.
(2)There is no mechanism for a legitimate whistle blower to be recognised as legitimate when voicing concerns, whilst still working within an organisation. Therefore he can be exposed to corporate intimidation, isolation, and threats when he uses the internal processes made available to him as encouraged by PIDA. But at this stage when he is most exposed to corporate abuse of intimidation—he remains unprotected and he has no legal status as a legitimate whistle blower.
(3)PIDA only properly applies when the whistle blower invokes the principles of “protected disclosures” when dismissed or when leaving the firm he works for. He cannot use PIDA when still working as there is no device or process which is embedded within legislation-and corporations have evidently shown they ignore any supposed protections—which PIDA aspires to.
(a)The Whistle Blower may be a member of a Trades Union; at Lloyds Bank, for example, the Trade Union—LTU—would advise the whistle blower to follow the “grievance processes” set up by the bank .This advice does not protect the whistle-blower whom suffers exposure and corporate intimidation.
(b)He may be advised that Lloyds Bank have a whistle blowing hotline operated by Public Concern at Work—whom are paid by Lloyds Bank to provide whistleblowing advice ; but only when still employed at Lloyds and not when dismissed.(See later Section F—Whistle Blowers Organisation).
(c)Yet despite the existence of these agencies whose purpose is to protect the whistle blower—WBUK Lloyds Bank members have explained to Whistle Blowers UK that they felt there was inadequate protection for themselves and were vulnerable to corporate pressures; but such members were properly fulfilling their statutory obligations-as regulated approved persons—in reporting their concerns of possible corporate mis-conduct—which is required of them by law.
(4)Corporate intimidation can continue after the whistle blower leaves employment whether dismissed, made redundant artificially, or who resigns through severe stress. This corporate intimidation can extend up to and through the Employment Tribunal system.
(5)So whistle blowers at Lloyds Bank, for example, remain completely exposed when making formal whistle blowing complaints –even though there are several agencies in existence which are meant to protect the whistle blower when in employment.
So at Lloyds Bank we have the Bank’s own staff manuals and grievance processes, the law in PIDA, the trades union LTU, PCAW’s hotline (for which PCAW receive an income) and the regulators—the FSA.
Yet despite this impressive agency array of would be protections—Whistle Blowers remain unprotected and dangerously exposed to corporate intimidation, threats and their apparent freedoms to ruin lives and careers.
(6)There is no commercial advantage for a corporation and regulated firm to recognise the employee voicing his concerns as a legitimate whistle blower—as such recognition implies a possible corporate failure to comply with the regulatory law; and such failure implies a risk to the commercial interests of the firm.
(7)If, however, by law or regulation the corporation was compelled to recognise the legitimacy of the whistle blower then PIDA would apply when the employee was still employed and not after the dismissal of the employee.
Therefore the recognition of the legitimacy of the whistle blower through an act of registration would invoke further protection afforded the employee—such as due duty of care under Employment Law and Discrimination legislation to prevent vicarious risks of corporate intimidation and bullying.
(8)How would such a registration system work?
(a)This would apply to any regulated activities within the banking sector and those activities which are supervised by the regulator the FSA/FCA.
(b)The act of registration is not a device to investigate the alleged breaches which have triggered the whistle blowing actions; this is the job of regulators.
The act of registration is a recognition that the whistle blower is claiming to act in good faith within PIDA 1998 and is should be afforded protection whilst employed.
(c)Who can execute and record an act of registration?
Trades Unions on behalf of a member.
WBUK on behalf of a member.
PCAW on behalf of a client.
Any other body representing whistle blowers within regulated activities.
The whistle blower through a simple act of registering with a notary of oaths-such as a Private Practice solicitor or a solicitor at the Citizens Advice Bureau.
(d)The registration system merely records the act of registration as a legal event; and thus the act of registration itself would be recorded only at a registrar as a matter of record. The registry can be kept at the regulator, or an Ombudsman (see Section 5d—Ombudsman); and copied to the corporation’s HR and Legal and Compliance Directors.
The act of registration which is a simple letter or document is enacted by the whistle blower and his property and he may use the document in the public domain if he so wishes.
(e)Therefore such a simple system should enhance protection for the whistle blower whom is still employed and such protection is extended should the whistle blower be forced to leave employment—as a result of his whistle blowing actions.
The employer would thus be discouraged from behaviours which are described as examples of vicarious actions –such as bullying, intimidation, threats, and may be discouraged from dismissing the whistle blower for gross misconduct.
(f)Therefore in any subsequent legal proceedings or actions the validity of the registration would be tested and if found to be with substance, the corporation’s own conduct would also are examined.
If the corporation accepted the whistle blower’s registration as valid at the time of registration—and displaying good conduct—then any subsequent sanctions which may be imposed would reflect this good conduct as “best practice”.
(g)Conversely if the corporation did not recognise the whistle blowers registration as valid and then the regulator vindicates the whistle blower, it follows any sanctions imposed upon the corporations should reflect this failure.
(9)What are the advantages of a registration system?
(a)It costs nothing.
(b)It uses existing legislation and encourages the corporation and the whistle blower to act to comply with the law.
Existing legislation exists to support a registration system .The Financial Services and Markets Act 2000 is legislation based upon the standard of principle based legislation-the FSA Principles.
For example the FSA acting on the application of these Principles can issue guidelines which have legal substance—such as the FSA Guidelines “Treating customer fairly regime”.
So using the Principle based legislation, the FSA/FCA are already empowered to ensure Corporate compliance with the Principles and so should be further encouraged by new guidelines such as “Treating employee whistle blowers fairly”.
Part of this regime would ensure that legitimate whistle blower complaints were handled by the Bank and were treated as regulatory based complaints and not as grievances—as described in Part 1.
Public Concern at Work (UK Whistle Blowing Charity) and BSI (British Standards Institution) state:
“Whistleblowing is where an employee has a concern about danger or illegality that has a public interest aspect to it; usually because it affects others (eg customers, shareholders, or the public). A grievance or private complaint, is by contrast, a dispute about the employee’s own employment position and has no additional public interest dimension.”
Within the approved person regime—the FSA/FCA can also embed the “Treating employee whistle blowers fairly” Regime. Part of this regime would be the FSA/FCA encouraging banks to comply with the aforementioned Registration system.
(c)This simple adjustment of a no cost registration which can use existing legislation which will go some way to protect the whistle blower whom is acting for the benefit of society—in good faith.
(d)Ombudsman.
(1)If this commission is minded to consider more robust remedies which imply more regulation within the Banking Sector then a proportion of the fines levied—can be redirected to setting up a Whistle Blowing Ombudsman whom could also act as the Registrar of the Banking Whistle Blower registering a whistle blowing action. This WB ombudsman would be funded by levies raised by fines and would therefore should not be an additional cost met by UK Taxpayers.
(2)Consideration could be given to enable the Ombudsman to have:
(a)Powers in the regulated banking sector only.
(b)Extend the remit to all activities within the Financial Services Sector.
(c)Across all industries and public agencies including the NHS and Care Sectors.
(3)The Ombudsman would ensure ,for example, PIDA was properly applied and would, I suggest be effective in monitoring “black listing” within industries (such as the construction industry)—or monitoring whistle blowers reporting being victims of implied discrimination by potential employers—when applying for work (as in the case of Martin Woods the Wachovia Bank Whistle Blower—see Note 8).
(4)The case for a Whistle Blowing Ombudsman to protect whistle blowers may be reinforced by the proposition that large UK High Streets Banks whom enjoy implicit taxpayers subsidies and thus such subsidies -need to be insured by an Ombudsman service.
Also the Commission’s discussions around the wider responsibilities Bankers have to society, by the nature of their financial support of society—when such wider societal responsibilities should be represented by a Whistle Blowing Ombudsman.
Part C—FSMA 2000, and the FSA Regulators
Introduction; FSA statutory objectives’ have conflicting obligations which directly impact upon whistle blowers
1. In this section I am referring to the Financial Services and Markets Act 2000 (FSMA 2000) and how it applies to the regulator—the Financial Services Authority (FSA) and the statutory objectives.
(I have no experience in matters relating to the other banking/finance related regulators—the Serious Fraud Office, the London Stock Exchange or the Financial Reporting Council)
2. Hector Sants, former CEO of the FSA stated to the Commission on 10 January 2013 that the FSA tried for four years to get the banks to cease selling unsuitable PPI products; and the banks resisted because they had sufficient power to choose to fight the FSA.
Mr Sants said the FSA did not have sufficient powers to intervene more proactively and the failure of the FSA over PPI—was a reflection on the “balance of power”.
Mr Sants, also said implied that “it was extremely difficult” to target Senior Directors whose own conduct appeared to be the cause of the banking abuses. (Note 9)
3. FSMA 2000 and its conflicting Statutory Objectives
Mr Sants, when he describes “balance of power” and insufficient powers—may be referring to the conflicting statutory objectives of FSMA 2000 which also directly impact upon whistle blowers.
(a)These conflicts, which I will attempt to explain, may provide some enlightenment as to why the FSA has failed, as a regulator, in its supervision of the UK Banking Sector.
The FSA statutory objectives are:
Market confidence—maintaining confidence in the UK financial system;
Financial stability—contributing to the protection and enhancement of stability of the UK financial system;
Consumer protection—securing the appropriate degree of protection for consumers; and
The reduction of financial crime—reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.
(b)There are inherent conflicts between:
(1)Maintaining confidence in the UK financial system and securing the appropriate degree of protection for consumers.
(2)Contributing to the protection and enhancement of the stability of the UK financial system-and securing the appropriate degree of protection for consumers.
These conflicts of interest directly impact upon whistle blowers whom are still seemingly ignored by the FSA or are treated in an apparent dismissive manner.
(c)Why?
(1)There is a regulatory reluctance to describe or classify mis-selling as fraud—whereby it is proven that the known cases of so called mis-selling is a form of fraud.
Fraud is deceitfulness or false misrepresentation—or a deception intended to benefit the deceiver.
Fraud requires a deliberate wrongdoing. It requires somebody actually knowing that they are doing something wrong and misleading somebody.
PPI was not a case of mis-selling by an implied mistake or a mis-judgement; PPI selling was an organised deliberate exercise in non-transparent misleading deceptive selling activities-which is fraud.
(2)The FSA has powers under Section 397 as does the SFO as described in their Handbooks (Note 10).
(3)The FSA refuses to classify the PPI activities as fraud ;and such a refusal is because the FSA are seemingly acting to fulfil their statutory objectives to maintain “market confidence” and “financial stability” over their statutory objective of providing “consumers protection.”
Or the FSA as a society agent is protecting the interest of corporate organisations over and above the citizens whom are the voters and are the whistle blowers; whom are the victims of mis-selling or fraudulent selling activities.
(4)Or to put this another way, the FSA statutory objectives of “market confidence” and “financial stability” seem to mean the large UK Banks “are too big to prosecute” which is how Andrew Bailey described the current situation as Managing Director, Prudential Business Unit FSA and Head of the incumbent PRA. (See note 11)
Mr Bailey’s public admittance of UK Banks being “too big to prosecute” is confirmation of dangerous imbalances existing which distorts a true and functioning balance of power within a functioning society.
Mr Bailey wrote to Theresa May MP on 30 January 2013:
“In the interview (given to the Daily Telegraph 14 December 2013—Note 11)—I said that legal action against a major financial institution raised very difficult questions, and it would be a destabilising issue. I compared it to the ‘too big to fail’ issue that exist with the major banks, who could not fail without taxpayers support, and the major financial stability implications.”
“The purpose of my remarks was to highlight the issue and the prudential concerns that it raises. I do not believe that this is an acceptable position, and believe that it is important that the regulatory authorities examine the issue and potential solutions so that wrong-doing can be appropriately punished.” (See note 11a)
(5)Returning to the former CEO of the FSA whereby Hector Sants informs the Commission the FSA do not have sufficient powers to properly supervise errant banking behaviour—I would suggest that he refers to the conflicting nature of the FSMA 2000 statutory objectives.
(6)Therefore when whistle blowers acting with evidence and in good faith, report to the FSA that there has been allegedly substantial fraud or widespread “mis-selling” and the FSA fail to properly respond—despite the evidence being robust—whistle blowers conclude with good reason the FSA are protecting corporations over and above the whistle blower and the UK citizen whom is the consumer; which is otherwise known as regulatory capture.
“Regulatory capture occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as an encouragement for firms to produce negative externalities. The agencies are called ‘captured agencies’.” (Note 12)
Therefore the FSA statutory objectives are inherently conflicting—with the balance of power confirmed in favour of the corporate organisations.
4. The FSA Regulators.
(a)Carol Sergeant, when in her role as the Chief Risk Officer at the Lloyds Banking Group (2004–11) gave oral evidence to the Commission on 17 December 2012—describing that she recalled having meetings with inexperienced more junior regulators and Ms Sergeant implied such FSA staff were “out of their depth”.
(b)In my own experience in 5 hours of presenting my concerns on LBG regulatory conduct to FSA Panels, I have the impression that certain key regulators did not fully understand how LTSB operated their regulated sales teams (from 2005–10); and why such a system presented wider risks of mis-selling; when set against the FSA Principles of fairness transparency and the “Treating customers fairly” Regime.
(c)Such regulators whom have important responsibilities—such as protecting millions of consumers, are I suggest, not properly qualified and many such regulators have no experience in how UK High St Banks in reality operate their regulated sales teams, on the ground, in their branch networks.
(d)Therefore it follows the FSA/FCA should be attracting the experienced personnel whom want to commit to the public service ethos and whom also may resist the “revolving” door opportunities (see below).
If whistle blowers are to begin to have confidence in regulators we have to have confidence in the staff—which we do not.
(e)The remedy is to attract the top talent which means ensuring the pay reflects the responsibilities and is set at an appropriate rate; which can resist more lucrative offers of working in the Commercial Banking Sector.
5. Revolving Doors.
(a)In principle there seems to be some benefits to society, when senior level and experienced individuals move from regulators to industry or into political life.
However given the public’s concerns about the banking failures and past and newly emerging abuses—the revolving door phenomenon is encouraging the public perception that institutional elites are working amongst themselves to protect senior bankers from proper scrutiny and in some cases possible prosecution.
The only institutional agencies who are attempting more effective scrutiny of Senior Bankers’ and Senior Regulators’ Conduct—are the Treasury Select Committee and the Parliamentary Commission on Banking Standards-both chaired by Andrew Tyrie MP.
(b)There are multiple examples of the revolving doors syndrome, but below I detail two such examples which undermine whistle blowers confidence in UK institutions:
Carol Sergeant CBE; MS Sergeant whom has given oral evidence on two occasions to the Commission was the FSA Head of Enforcement when she was recruited by Lloyds Bank in 2004 to be their Chief Risk Officer. (2004–11)
Ms Sergeant, whilst at Lloyds Bank resisted the FSA efforts to rein in—Lloyds Bank—selling PPI. Ms Sergeant is also Chair of Trustees at Public Concern at Work-UK’s only Whistle Blower charity. Ms Sergeant is also co-opted to Chair an advisory Treasury Committee on Banking Products.
Sir Hector Sants joined the FSA from a career in Banking in 2004 and was appointed CEO of the FSA in 2007. He resigned from the regulator in June 2012. He announced that he was to be Barclays Banks Chief Risk Officer from early 2013. He was awarded a Knighthood in the New Year’s Honours List 2013. When asked by the Commission why the FSA failed to properly supervise banking conduct—on his watch-Sir Hector maintains the FSA were never given sufficient statutory powers. There is no record of Mr Sants when at the FSA—asking for more statutory powers to tackle banking abuses.
(c)There is a justified perception that the revolving doors syndrome undermines the application of the rule of law in the UK.
Whistle Blowers have suffered broken lives because of UK institutional failures—and have a justified perception of a “lucrative institutional merry go round” whereby game keepers turn poachers and vice versa; and still in 2013 nothing has changed.
6. FSA/FCA role in PIDA and Employment Tribunals.
(a)The FSA has admitted to the BBC that they have never sanctioned a Bank who dismiss whistle blowers acting in good faith. (Note 12)
(b)The FSA refuse to comment on whether the regulator has investigated non-disclosure agreements following PIDA claims—whereby such settlements have been agreed between an approved person and a regulated firm. (Note 13)
(c)The FSA/FCA should be reminded that through existing legislation via FSMA 2000 that one of their Statutory Objectives is protecting the UK consumer and it is incumbent upon the FSA to enquire as to the nature of non-disclosure agreements following PIDA claims.
(d)Therefore Employment Tribunals(ET) when dealing with PIDA claims must be funded to capture the key data which relates to potential risks to the UK consumer being buried through settlements which have non-disclosure agreements. The FSA must be encouraged to understand the inherent risks being undiscovered and still yet potentially destabilising-through the ET not capturing key data relating to public interest matters on banking conduct.
The solution is to ensure the ET system provides the key data on PIDA settlements—to the regulators as explained in Part 1.
Part D—Banking Conduct and Whistle-Blowing
1. Whistle- blowers in the UK, past and present believe that the current leaderships in the UK banking sector view whistle blowers as hostile. In reality UK Whistle Blowers have been found to be loyal to the firm in which they work or used to work and, acted as they did as whistle blowers to protect the integrity of the firm and the welfare of the customers.
2. CEO’s of Lloyds Bank ,for example ( and the Chairmen and their Boards) have no incentive to protect whistle blowers within Lloyds and no incentive to co-operate willingly with regulators; whom may be acting on whistle blowing evidence.
3. The current Lloyds Bank CEO’s own remuneration and reputation is based upon performance indicators such as share price and profitability and a reduction in customer complaints. The achievement of reaching a certain share price might trigger an additional bonus allowing the UK Government to offload the taxpayers 40% share of the bank—without loss and ideally achieving a taxpayer’s gain.
(a)Or to phrase this statement in another way Senor Horta Osorio as CEO of LBG is being incentivised in a perverse fashion to ignore, then intimidate and then discredit legitimate whistle blowers.
(b)If a whistle blower comes forward with new allegations relating to widespread mis-selling in LTSB for example—which are not connected to PPI or Interest Swaps-the CEO is thus encouraged through these perverse incentives to treat the whistle blower as a threat to his remuneration and reputation; so far from being “customer focused” as he claims in his oral evidence to the Commission (on 4 February 2013)—he is acting against the interest of the customer whom the whistle blower is acting to protect—in good faith.
4. Therefore the Commission should consider that where a whistle blower has formally alerted the leadership of a Bank and the FSA—and is subsequently proven correct is his allegations—all extra financial rewards the CEO of the Bank receives on reaching his targets—should be clawed back in totality. This would also apply to the Chairman and his Board.
5. In addition there should be an application of a “wilful blindness test”, when leaderships being in receipt of information passed to them by whistle blowers—fail to act.
(a)Therefore the aforementioned Registration system described in section Part B (PIDA) would assist in this respect to counter the impact of perverse CEO incentives and ensure that the temptation to plead ignorance is properly exposed as wilful blindness.
US Judge Lake has defined wilful blindness in the trial of Jeffrey Skilling and Kenneth Lay CEO and Chairman of Enron:
“You may find a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. Knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.” (Note 15)
In UK law the use of terms such as connivance, conscious avoidance, or deliberate indifference may be tested when CEO’s plead ignorance concerning whistle blowers actions and their subsequent treatment by the corporation.
Part E—Whistle-Blowers Organisations
1. This is the written statement of a WBUK banking member when recently asked to introduce himself to the group:
“My health deteriorated as I was consistently lied to, victimised, threatened, bullied and harassed. An application was made to the Employment Tribunal, claiming amongst other things detriment and victimisation having made a protected disclosure. At the Employment Tribunal hearing my health had deteriorated to such an extent because of the threats and intimidation I was hustled into signing a compromise agreement terminating my employment. I was ‘isolated’ and ‘shot as a messenger’ I now face an uncertain future my career having been destroyed for doing what I was legally obliged to do. PIDA legislation has provided no protection.”
2. There are now, I believe, two main UK Whistle Blowing organisations, of any substance and size which concern themselves with internal (or employee) Banking whistle blowing issues; these are Whistle Blowers UK (WBUK) and Public Concern at Work (PCAW).
(a)WBUK is a voluntary self-help mutual organisation run by whistle blowers for the protection and welfare of whistle blowers. WBUK is independently funded and will never accept any corporate donations of self-interest.
(b)PCAW is a registered charity staffed with paid professionals funded by corporate organisations such as Lloyds Bank and NHS agencies.
These organisations share some common aims but are quite different.
3. Whistle Blowers UK (WBUK)
(a)WBUK has, in a short time, become a significant organisation with a substantial national membership of UK whistle blowers past and present from across industry sectors. Our membership is drawn from retail banking, investment banking, insurance, pensions, the NHS, Care, the Police, Military and defence, aerospace, the travel sector, social services, other public agencies and small businesses.
(b)Our support network of advocates whom volunteer their own time includes Academics, University staff, trained counsellors, Mental health specialists, lawyers, and selected supportive journalists whom properly investigate whistle blowers stories.
(c)WBUK is best described as an umbrella group which has close contacts with other voluntary organisations such as Patients First and Compassion in Care. Our membership includes prominent whistle blowers whose brave actions have exposed institutional corruption, abuse, and corporate misconduct in the UK, the Republic of Ireland, Saudi Arabia, South Africa and Canada.
(d)Our first inaugural conference was held in March 2012 and subsequent conferences have attracted more member whistle blowers. We formally launched in December 2012 attracting over 70 attendees—some who travelled from abroad.
(e)The largest membership is drawn from the health and care sectors and the Banking and finance sectors.
(f)Our primary mission is to protect the welfare and well-being of whistle blowers past present and in the future-as a mutual self-help organisation.
Our secondary mission is to engage in the political process and lobby power to create more effective protection for whistle blowers within the UK; which as we have explained—is sadly lacking in our society and democracy.
(g)WBUK is independent and we were awarded a small Foundation Grant in 2012—and we have applied for further Foundation Grants for 2013.
We are working to emulate the Government Accountability Project which has grown to become an effective whistle blowing advocacy organisation in the US.
4. Public Concern at Work (PCAW).
(a)WBUK and PCAW share some common objectives in working to assist whistle blowers and to lobby to improve whistle blowers protection through effective legislation.
(b)Public Concern at Work—which is UK’s only dedicated whistle blowing charity, is the primary collator of relevant data on Banking whistle blowing actions in relation to PIDA claims in the Employment Tribunal System.
(c)PCAW also engage in the political process and lobbies to stiffen whistle blowers protection.
(d)PCAW are however primarily dependent on contracts from industry and the public sector and is therefore restricted on any claim to be truly independent. For example one of their main customers is the Lloyds Banking Group.
(e)The staffs at PCAW are lawyers or legally trained executives with support staff (whereas the Members of WBUK are whistle-blowers past and present).
(f)PCAW’s Chair of Trustees is Carol Sergeant whom from 2004–10 was the Lloyds Bank Chief Risk Officer -the most senior Compliance Director within the Lloyds Banking Group. She was therefore responsible for ensuring LBG were complying with legislation and regulations such as FSMA Act 2000; the FSA Principles and the Treating Customers Fairly Regime. At LBG she was also responsible for applying PIDA to the bank processes to protect whistle blowers.
Carol Sergeant was asked to give evidence to the PCOBS on two occasions.
(g)WBUK Banking members have expressed concern about the influence that Lloyds Bank Directors past and present seem to have at PCAW. There is no public record of any LBG whistle-blowing re PPI. Lloyds Bank UK’s largest retail Bank are directly funding PCAW and is PCAW’s largest corporate customer.
(h)PCAW which has qualified staff and does valuable work on whistle blowing issues deserves a more appropriate funding model which guarantees independence from corporate influence.
5. Funding requirements.
(a)Given then scale of the fines imposed on Banks by the FSA we propose that PCAW and WBUK should both be encouraged to apply for a percentage of the fines levied against the banks by the FSA—so be fully funded and independent.
(b)Such funding would enable society to address the imbalances and misalignments within society, which as I have argued in this paper are currently loaded in favour of powerful corporations whom have no vote in our democracy. Without society’s support whistle blowers whom act in good faith will be continually exposed to over powerful corporations in an atmosphere of an Orwellian world not so far removed from “1984”.
Part F—The Public Perception
1. In November 2012 Greenwich University and a Market Research agency ComRes published a report based on a survey of 2000 UK citizens. The main findings were;
(a)53% said that they were concerned that too much publicly relevant information is kept secret by organisations.
(b)81% stated that whistle-blowers deserve our support when reporting allegations of mis-conduct.
(c)75% of those questioned stated they would feel they should report an abuse or wrong doing despite the risks—implying UK citizens would like to do the right thing.
(d)Less than half of those surveyed were confident that the management would protect whistle blowers,
“If we want to encourage people towards internal reporting, we’ll need to make those involved feel safer”; announced research leader Wim Vandekerckhove from the Work and Employment Relations Unit at the University of Greenwich. (See note 16)
Acknowledgements
The author would like to acknowledge the encouragement and guidance provided by:
1.Whistle Blowers UK.
2.Parliamentary Commission on Banking Standards.
3.National University of Ireland, Galway.
4.Cambridge University.
5.City of London University.
6.Public Concern at Work
Notes
1. Andrew Tyrie; MP, Chairman of the Parliamentary Commission on Banking Standards; author of article published in the Financial Times 27 January 2012—“Electricfying the ring fence.”
2. Wim Vanderkerckhove and Eva E Tsahorida 2010; Journal of Business Ethics; “Risky rescues and the duty to blow the whistle.” University of Greenwich Business School and RMIT University Melbourne Australia.
3. Marit Skivenes and Sissel C Trygstad; Human relations and Tavistock Institute 2010; “When whistle blowing works.” (University of Bergen, Norway and FAFO—Institute for Labour and Social Research in Oslo-Norway.)
4. Hector Sants; oral evidence to Parliamentary Commission on Banking Standards 9 January 2013.
5. BBC Newsnight reported on 11 September 2012:
“Newsnight can reveal that not a single UK-based bank has ever been punished for firing a whistle blower within its ranks—even though these individuals are protected in law since the Public Interest Disclosure Act 1998 came into force.
When Newsnight approached the FSA for a response it said it would not comment on individual cases, but acknowledged that no bank had ever been sanctioned in such circumstances.”
6. Francesca West and Shonali Routray, August 2012; Public Concern at Work; Submission to Parliamentary Commission on Banking Standards.
7. As above in Note 6.
8. Martin Woods http://citywire.co.uk/wealth-manager/court-sides-with-coutts-over-expert-who-blew-the-whistle/a649245
9. As in Note 4.
10. FSA:
(a)Section 397;
FSA; http://www.legislation.gov.uk/ukpga/2000/8/section/397
(b)SFO Handbook guidance.
http://www.sfo.gov.uk/media/99198/financial_services_offences_sfo_operational_handbook_topic.pdf
11. Recent statements by Andrew Bailey, the new head of the Prudential Regulatory Authority whereby he publicly stated that UK High Street Banks are too big to prosecute; and such statements have already begun to undermine the fragile confidence in the new regulator—set up precisely correct the failures of the FSA—which it is replacing.
“Mr Bailey told The Daily Telegraph that some banks had grown too large to prosecute. ‘It would be a very destabilising issue. It’s another version of too important to fail,’ he said”. (14 December 2012).
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9743839/Banks-are-too-big-to-prosecute-says-FSAs-Andrew-Bailey.html.
11a. Letter sent by Andrew Bailey ,Managing Director Prudential Business Unit FSA-to Theresa May MP acting for the author in her Maidenhead Constituency duties; 30 January 2013.
12. As in Note 5.
13. Regulatory capture
http://en.wikipedia.org/wiki/Regulatory_capture
14. Correspondence sent to the author by Senior Legal Counsel FSA; 18 January 2013—available on request.
15. Margeret Heffernan; Willful Blindness 2011; Walker Publishing Company.
16. Risky Rescues and the Duty to blow the Whistle 2010; Journal of Business Ethics by Wim Vandekerckhove—Greenwich University Business School, UK; and Eva E Tsahuridu; RMIT University, Melbourne University, Australia.
8 February 2013
