The employment tribunal claim against EFG Private Bank hit the headlines last week, and is sure to stoke debate about whether whistleblowing protections in the UK are up to the job.
Dmitri Rozanov was the managing director of private banking at EFG. He claims he was dismissed last August after he blew the whistle on weaknesses in the banks controls and systems. EFG says that Rozanov lost his job because he was not very good at it and that its own formal investigation found that he had not made any protected disclosures. It also says Rozanov should have escalated his complaints within EFG or to the Financial Conduct Authority (FCA).
Staley was fined nearly £650,000 by the FCA and the Prudential Regulation Authority – 10 per cent of his pay, reduced for early settlement – and also had £500,000 of his bonus clawed back by the bank. When announcing Staleys penalty, the FCAs chief executive director Mark Steward, acknowledged the “vital role” played by whistleblowers.
Despite this, Staley was still deemed fit and proper to run Barclays, leading many to wonder whether the regulators had really done enough to deter others and to reassure potential whistleblowers.
These cases highlight the precarious position of whistleblowers in the UK. While there are legal protections, whistleblowers are not normally compensated or rewarded for exposing wrongdoing within their organisation.
Many who raise their head above the parapet do so with the real risk of being shut out of their industry and denting their earning potential. This is hardly an incentive for others to report significant corporate wrongdoing.
The US addressed these issues head-on following the financial crisis. Under the Dodd-Frank Act, anyone who reports breaches of securities law to the Securities and Exchange Commission (SEC) is entitled to a percentage of the financial penalty imposed on the wrongdoer, where it is more than $1m.
The amounts paid to whistleblowers have been significant, with the largest award around $35m. It has led to a significant rise in tip-offs, which SEC officials have described as “transformative” to their work.
A 2014 report from the FCA and PRA argued against the introduction of similar incentives in the UK. They said there is no evidence that paying whistleblowers will mean an increase in the number or quality of disclosures. The US experience since then has undermined this argument.
It was also argued that financial incentives posed “moral hazards”, and that multi-million pound awards for whistleblowers for simply complying with a public or regulatory duty to report wrongdoing would offend UK public opinion.
The time has come for a reassessment of the UKs position. The experience of other countries should not be ignored, and the evidence from the US and elsewhere suggests that payments to whistleblowers would encourage individuals to expose wrongdoing, by providing another layer of protection in the form of compensation for lost opportunities.
Any steps that the UK can take to improve its regulatory response to misconduct should not be dismissed lightly, however “un-British” it may seem.