3rd April 2013
There have been calls from many commentators, most notably Ian Cowie on his Telegraph blog to provide protection for financial services whistleblowers by adopting a US-style system.
There is clearly much merit in this. When you say something is going wrong at a firm and tell the authorities, it can be a remarkably stressful process and highly destructive to a career. In the worst cases, continuing at a firm can prove almost impossible and getting another job likewise certainly if word gets around.
Therefore it may well make sense to bring in a system where compensation is offered.
But Mindful Money has a few observations to make. First, how can we protect whistleblowers who are concerned as much with culture, a lack of oversight, too much chief executive dominance and the like rather than with fraud or rule breaches?
Whilst a lax or reckless culture often leads to a rule breach eventually, it is by no means guaranteed.
Second, perhaps uniquely within Europe, we have a huge number of IFAs who are meant to be the agent of the client. They may not have always been successful in fulfilling this role and with new rules numbers are shrinking. But many expressed concerns about the shape of the market and the behaviour of financial firms, banks, and even their peers during the run up to the financial crisis. For whatever reason, they were ignored by the old regime. There are still more than 20,000 advisers out there to sound the alarm from time to time.
Of course consumers themselves are also a good source of intelligence. But were they listened to in the run up to the crisis? There is an argument to say that the old FSA had another early warning system and it was called the Financial Ombudsman Service. A robust and systematic analysis of complaints at FOS may well have warned the FSA that things were going wrong. We are told communication is better now. Let’s hope so.
Finally of course, newspapers themselves if they couldn’t predict the shape of the financial crisis, gave plenty of warnings about some of the symptoms, especially the fact that bank lending felt as if it was getting out of control. Indeed in the pages of the Financial Times, it was possible to find concerns raised by journalist Gillian Tett about what was going on with new fangled mortgage securities and related derivatives.
You just had to know where to look. So while Mindful Money agrees with Mr Cowie – something really should be done to protect whistleblowers, the second part of the challenge is for the regulator to understand what the market, and all the people in it, including consumers, savers and investors are telling it. In some ways that is almost a bigger challenge though we also wonder how you whistle blow when it is simply the culture that is wrong.