29 May 2015 - Post by:Simon Coates
Money talks…. so begins an article in today’s FT by Gillian Tet. She argues for rewards for whistleblowers as the only way to uncover malpractice in the financial services sector (Finance must blow the whistle on foul pay).
While financial rewards may not be the only way to encourage whistleblowers, this is a debate that continues to be raised, and I agree with her that reward is likely to encourage more people to come forward (though I do not agree with her description of the legal protection for whistleblowers in the UK as “modest”, but that’s a post for another day!). To have financial rewards for whistleblowers would, I think, shift the focus and help force the drive towards compliance. There is a feeling that the financial crisis of 2007/8 and the size of the fines now being imposed on banks have come about because employees in the past have either buried their heads in the sand with regards to malpractice around them or (worse) joined in, because of the perception that they were untouchable. The fact that the regulators are just “catching up” with historic cases of Fx and Libor manipulation, which were so widespread and endemic, and that all of this went undetected for so long by both regulators and internal compliance teams shows, at least to some extent, that understanding how these practices work so as to detect them quickly and catch wrongdoers “red handed” will be very tricky without a change in tack.
We have seen arguments played out about how curbing bonuses and allowing for the exercise of malus and clawback to variable compensation is supposed to discourage excessive risk taking and play its part in mitigating against misfeasance. However, with UK-based financial institutions using fixed pay allowances and increases in fixed pay (neither of which can then be clawed back) to counter this and to remain competitive with other major economies, surely this risks having the opposite effect? To champion whistleblowers and reward them for tipping-off the relevant authorities might just be the change of tack that is needed. This would encourage all employees to police their own trading floors and who better than those ‘in the know’ coming forward to put the regulators on the front foot (rather than detecting this too late – after the damage has been done)?
With the sheer size of the fines the regulators are pulling in at the moment, I am not altogether clear as to why a whistleblower could (and should) not get a cut of a successful prosecution or fine.