Financial Sector Whistleblower Safeguards: Failing the Reality Test?Tweet
April 20, 2017
Since the financial crisis nearly a decade ago, whistleblower protections in the financial sector have been substantially enhanced in the United States and in the United Kingdom—both key hubs in global markets and home to many multinational companies. These protections for company insiders further the Dodd-Frank Act’s aim “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, [and] to protect consumers from abusive financial services practices.” For whistleblower programs to be meaningful, potential whistleblowers must not be forced to choose between their careers and disclosure of misconduct. Rules preventing retaliation must be strictly enforced to prevent employers from taking action to expose or punish whistleblowers.
But recent events at Barclays Bank demonstrate the ease with which senior managers can undermine whistleblower protections, even as their institution stresses its commitment to having “robust whistleblowing arrangements in place” and to building “trust in the fact that whistleblowers are protected and that their information leads to constructive action being taken.” Barclays is a major international financial institution that, while based in the United Kingdom, has a significant presence in the United States.
Barclays PLC and Barclays Bank PLC (Barclays) have announced that UK regulators (the Financial Conduct Authority and Prudential Regulatory Authority) are investigating actions by CEO Jes Staley to uncover the identity of a whistleblower who had written letters to Barclays officials concerning conduct by a senior employee hired by Mr. Staley. According to news reports, Mr. Staley emailed employees last week stating that he viewed the letter as attempting to “maliciously smear” the senior employee. He sought to uncover the complainant’s identity so that he could urge him to “stop the harassment,” twice requesting Barclay’s internal security team to determine the writer’s identity. The security team received assistance from a US law enforcement agency in its effort to identify the letter’s author, according to Barclays.
The UK investigations are also examining Barclays Bank PLC’s conduct relating to Mr. Staley’s actions, and its systems, controls, and culture relating to whistleblowers. Reportedly, the US Department of Justice and New York State’s Department of Financial Services have also launched investigations into this matter, underscoring that concerns about Barclays’ corporate environment are not limited to only one side of the Atlantic.
For its part, Barclays has announced that it will formally reprimand Mr. Staley and make a “very significant compensation adjustment” to his bonus. In recent years, Barclays’ compliance program and corporate culture have come under scrutiny. In 2012, for instance, it agreed to pay $450 million in penalties due to its role in the manipulation of a key interest rate, Libor, from 2005-2009. Barclays has undertaken a number of reforms to restore trust and achieve major cultural, financial, and performance enhancements.
Staley’s handling of the whistleblower complaint reflects the fragility of whistleblower protections where a weak compliance culture and flawed internal controls permit evasion by senior managers motivated to take defensive action against a complaining employee. “Jes Staley has, at a stroke, punctured the trust that his workforce has in this incredibly important thing,” Dino Bossi, partner at Addveritas, a British consulting firm specializing in whistleblower protections, stated on CNBC’s Squawk Box on April 11.
In the absence of rigorous procedures and checks and balances to protect against such conduct by even the most senior bank officials, whistleblowers may be placed in jeopardy, and other potential whistleblowers deterred from coming forward. Whistleblower complaints are a primary source of information about corporate fraud and other misconduct, and provide critical help to business entities and regulatory authorities in enforcing applicable business conduct standards and requirements.
In view of the likely severe impact its CEO’s conduct will have on Barclays’ whistleblower program, Barclays and its regulators should assure that commensurate actions are taken to penalize that conduct and restore confidence in the integrity of the whistleblower program. The reprimand and bonus adjustment indicated by Barclays’ Board do not seem designed to rectify the harm done by Mr. Staley’s conduct or to restore confidence in its whistleblower protections. More substantial penalties should be levied on Mr. Staley, and Barclays should undertake remedial measures to fortify its internal whistleblower procedures and educate its senior managers and other employees about their duties under those requirements.
Nick Schwellenbach's areas of expertise include: Government Oversight, Wasteful Contractor Spending, Open Government, Financial Sector, Whistleblower Issues.
Authors: Nick Schwellenbach
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