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New City regulator urges whistleblowers to protect consumers but who will protect the whistleblowers?

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New City regulator urges whistleblowers to protect consumers but who will protect the whistleblowers?Regulator Blows the Whistle

The head of the new City regulator, the Financial Conduct Authority (FCA), began his first week in office by calling on employees who know about wrongdoing in the industry to speak out – but Britain lacks financial protection for whistleblowers.

Martin Wheatley, managing director of the FCA, which replaced the Financial Services Authority (FSA) on April 1 – yes, really – told BBC Radio 4: “Where people know about wrongdoing, we want to hear from them.”

But the unfortunate reality is that whistleblowers who point out that the bank they work for is misselling payment protection insurance (PPI) or that insurers are recommending personal pensions incorrectly can expect to be punished rather than rewarded by their employers. At the very least, bonuses may be cut and promotion prospects damaged; at worst they could be sacked.

Employees who take those risks in order to protect consumers in America are provided with financial protection against the consequences of whistleblowing, as pointed out in this space earlier this year. Scandalous allegations that an NHS chief executive faces financial ruin after speaking out about high death rates are just one example of how British law fails to encourage and protect whistleblowers, legal experts claim.

They argue that financial incentives for employees to speak out about corporate malpractice might have prevented banks misselling PPI or personal pensions years before these cases of mass consumer abuse came to light.

American laws already provide substantial cash encouragement for employees to publicise wrong-doing by employers, even if that puts their promotion hopes or salary at risk. For example, where corporate tax fraud, gross negligence or other criminal behavior is exposed, American whistleblowers can receive a share of any funds recovered.

David Lawler, a partner at specialist accountants Forensic Risk Alliance, pointed out: “For most people, fear is a more common cause of corrupt behavior than greed. People want to avoid conflict, and speaking up can taint a person’s career, even if the person is vindicated.”

By contrast, for more than a century American citizens have been offered financial incentives to report misuse of public funds. Legislation in recent years has extended that principle to include payments to whistleblowers by the Securities and Exchange Commission (SEC), the American equivalent of the Financial Services Authority.

The False Claims Act of 1863 allows citizens to report contractors committing fraud against the government, usually involving healthcare, military or other spending programmes. Whistleblowers can receive between 15pc and 25pc of any recovered funds under what is called the Qui Tam provision.

Then the Dodd–Frank Wall Street Reform and Consumer Protection Act 2010 was signed into law by President Barack Obama, after initially being proposed by Congressman Barney Frank, and chairman of the Senate Banking Committee Chris Dodd. Section 922 of the Act promotes whistle blowing by authorising the SEC to pay rewards equal to 30pc of funds recovered after wrong-doing by financial institutions.

Mr Lawler said there are no similar cash incentives in Britain but added: “The Employment Rights Act 1996 incorporates the Public Interest Disclosure Act of 1998 and provides protection for an employee who reports in good faith suspected malpractice.”

However, Daniel Naftalin, a partner at solicitors Mishcon de Reya, pointed out practical problems: “In practice, the legislation is substantially weakened.

“Claims of detriment or dismissal in response to a whistleblowing disclosure have to be brought in the Employment Tribunal in which costs are not recoverable by the winning party. This means that an employee has to take on significant financial risk in bringing a claim, usually against a party with much deeper pockets.”

Ros Altmann, a governor of the London School of Economics commented: “It is vital that those who try to expose scandals which harm members of the public are protected by the law against ruinous claims against them by those who have been exposed.

“If people cannot safely report abuse, then consumer protection is clearly compromised. It is those inside an organisation who are obviously best placed to report such wrongdoing and, if they are barred from speaking out, there will be many more wrongs committed.

“Instead, at present, too many companies deliberately seek to prevent serious shortcomings being exposed. It is very stressful to report an employer to the authorities, one has to put oneself and one’s career on the line. We need more people brave enough to do so.”

Here and now, if Mr. Wheatley expects bankers and insurers to expose wrongdoing by their employers, he must find a way to provide financial protection for whistleblowers. The American examples show this is possible and his colleagues at the SEC can talk him through the details. Otherwise, replacing the FSA with the FCA may amount to nothing more than acronym scrabble or sweet FA

SOURCE: The Telegraph


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