Photographer: Simon Dawson/Bloomberg
Whistle-Blowing Shouldn't Pay Generously, Top U.K. Bankers SayBy
Barclays’s head of conduct sees risks of wrong incentives
Whistle-blower cases at FCA fell below thousand last year
Banks in the City of London are against handing financial rewards to whistle-blowers, and ultimately hope to get to the point where they won’t need informants.
Firms including Barclays Plc, Nomura Holdings Inc. and Societe Generale SA are opposed to the idea of handing out more awards for informants because they think it would create a bad incentive, according to interviews with executives at the banks this week. The debate on whether authorities and banks should provide greater rewards and protection comes amid concern that many employees pay heavy personal and financial costs when they decide to blow the whistle.
The U.K. is unlike the U.S., where regulators offer substantial awards to whistle-blowers. The U.K. Financial Conduct Authority doesn’t offer such incentives and it has rejected the idea, saying there is no evidence that doing so would improve the quality of the claims.
“In the U.S., it has been effective in a few very high-profile cases," said Benjamin Bair, global head of conduct oversight at Barclays, in a interview on the sidelines of a conference in London.
“Unless there is a real systemic approach of breaking the law, or misrepresenting the accounts, it’s very, very difficult to think about having an incentive for whistle-blowing,” said Randal Tajer, global head of compensation and benefits at Nomura in a interview in London.
The Internal Revenue Service in the U.S. awarded $104 million to Bradley Birkenfeld in 2012, a former banker at UBS Group AG, for telling investigators how the bank had helped thousands of Americans dodge taxes -- the biggest IRS whistle-blower award ever. Birkenfeld had to serve prison time for his own involvement in the UBS scheme.
For Bair, the financial rewards in the U.S. should be seen as a “compensation for a significant loss of livelihood," rather than as a “remuneration."
The numbers of informers reported to the FCA have gone down over the last year, whereas at most firms including Barclays it continues to go up, according to Bair.
“Maybe more people are reporting internally, rather than going to regulators,” he said. “But, I was quite surprised to see the regulatory numbers going down. Their numbers for the market are roughly our entire numbers just for our firm.”
It comes as Barclays Chief Executive Officer Jes Staley remains under scrutiny from regulators after he was reprimanded in April for trying to repeatedly unmask a whistle-blower, even after colleagues said it was inappropriate. The CEO may have to step down if the FCA deems him unfit to lead a financial institution.
The number of claims generally in the U.K. may spike as an immediate reaction to a monetary incentive, said Derek Hammond, head of culture and conduct at Societe Generale SA, while for Katarina Rosen, of Credit Suisse Group AG’s conduct and ethics program, a financial reward might make whistle-blowers feel “even less comfortable, with what they have done.”