As research reveals a significant spike in whistleblowing to the FCA, Rebecca Jones investigates whether telling all has become any easier for financial advisers
Whistleblowing within the financial services industry is on the up. According to a freedom of information request obtained by Kroll Advisory Solutions, calls to the Financial Conduct Authority's (FCA) whistleblowing helpline increased 35% between November 2012 and October 2013, a rise from 3,813 in the previous 12 months to 5,150.
The statistic is certainly encouraging. But does it mean whistleblowing is becoming any more attractive or simpler for financial advisers? On closer inspection, it seems that, while it may be becoming more common, for some it is still as fraught as ever.
Raising the flag
What to expect as a whistleblower in financial services
Dave Penny, managing director of Invest Southwest, recently spoke out about the mis-selling and heavy-handed sales tactics he witnessed during his time as a team manager at Lloyds Bank between 1996 and 2000, and at Halifax between 2005 and 2006. Penny claims that, at Lloyds, he and his team were constantly pressured into promoting and selling high risk 'precipice bonds' to clients with unsuitable risk profiles and were often disciplined for not meeting sales targets.
"There was a massive sales pressure," Penny explains.
"Sometimes, we were charged with getting hourly reports from advisers asking what they had sold to clients. It was ridiculous."
Penny claims he resisted the pressure and argued with management about sales tactics; however, he did not blow the whistle while he was employed at either bank as, he says, it was only in hindsight he realised what a "big deal" it actually was. He also warns that whistleblowing is made very difficult.
"There is a very strict compliance regime in place at these organisations, so if you say there is something terrible going on, they will turn around and ask why you are not implementing your compliance correctly. It is immediately your fault, which makes it very difficult to do anything about it," he says.
Of course, much has happened in the banking sector since Penny's departure from Lloyds and Halifax. While he says he still hears "rumours" of mis-selling, he admits banks have cleaned up their act somewhat.
There may, however, still be cause for concern within smaller advisory firms. One Hampshire-based adviser (who wishes to remain anonymous) recently blew the whistle on his former firm – an authorised representative of a large advisory network – as he strongly believed it was committing mortgage fraud.
In one case, he claims the firm pushed through an application stating the client earned a large sum as managing director of a firm that, according to Company's House, had been redundant for years.
Following his resignation, the adviser contacted the network, which, he says, merely called the firm to "ask for their side of the story" and failed to conduct a thorough investigation.
"I even contacted the FCA, which, again, was inconclusive because I could not hand over files seeing as I had already left the firm. I felt like I was not taken seriously enough on both counts," he says.
Ultimately, the network said it could not come to a conclusion and the adviser never heard back again from the FCA. Furthermore, he says his identity was soon revealed to his former employer, making a pay dispute – eventually settled in his favour – rather messy.
Aside from the difficulties advisers may face with former employers, networks and regulators, there are a number of other factors to consider before whistleblowing.
According to Penny, "the human element" is quite often the biggest concern for whistleblowers.
"If you are accusing people of mis-selling, you will have to name names. Essentially, you are grassing up the people around you – your friends and colleagues – and that is a very tough thing to do," he says.
What is more, says Penny, a whistleblower will quite often be implicating themselves, potentially jeopardising their own reputation, job and career.
"A lot of the time you are also exposing your own failings: you might be guilty of the sin you are accusing others of. The fear is that you may well be putting yourself in the frame," he says.
Even if the whistleblower is entirely innocent, they may still find themselves tarred with the same brush and struggle to find future employment.
The Hampshire-based adviser points to a case whereby an adviser employed at a liquidated firm had to wait six months for FCA approval to continue work "through no fault of their own".
All of this can lead – rightly or wrongly – to quite a fearful attitude when it comes to whistleblowing, potentially negating the supposedly 'rigid' whistleblowing systems put in place by some employers.
"There was a phone number at Lloyds but that did not make it any easier. The fact there is a whistleblowing line does not detract in any way from the fact you could potentially destroy your working life," says Penny.
Crossing the line
Despite all of the potential negatives he cites, Penny is adamant that, in the long run, blowing the whistle is usually the right thing to do.
"If you have the conscience and the decency, you have got to do the right thing. At the end of the day, you have got to live with yourself," he says.
In order for whistleblowers to protect themselves, both advisers recommend leaving the firm in question first. However, while this may offer protection, it could also reduce the chances of your complaint being taken seriously, particularly by the FCA.
Encouragingly, the Freedom of Information request also revealed a 72% hike in the number of cases investigated by the regulator in the third quarter of 2013, compared to the same period in 2012: up from 148 to 254 cases.
Nonetheless, the experience of some advisers, including our anonymous adviser, tends to be less positive when it comes to the regulator following up on complaints.
Generally speaking, the FCA requires as much evidence and corroboration as possible.
As such, a single adviser – particularly one that has left their previous firm under a dark cloud – with no evidence and no access to files is likely to be taken less seriously to one that can supply hard proof and has not acted alone in blowing the whistle.
It is also worth noting that it is not the FCA's policy to provide whistleblowers with updates. Despite this, the regulator has told us that it has recently made improvements to how it manages the process, including "better intelligence tracking" and, where it can, "providing feedback to the whistleblower".
Nonetheless, blowing the whistle as a single adviser is far from pointless. The FCA insists it "would encourage anyone with information about poor conduct at a financial firm to get in contact". Furthermore, even if you are alone and have little evidence, your complaint may topple a pile of tip-offs the regulator has already received in connection and potentially lead to a full investigation.
Whether you make that call or write that email, however, will depend on a number of factors, including a full evaluation of the consequences. While many, including Penny and the FCA itself, point to a "change in culture" when it comes to whistleblowing, there is little doubt that it remains an often risky thing to do.
Whistleblowing and enforcement
• Calls to the FCA's whistleblowing hotline increased 35% to 5,150 in the 12 months to October 2013, compared to 3,813 for the previous 12 months
• The number of new cases being investigated by the FCA in the third quarter of 2013 grew 72%, compared to the same period in 2012, from 148 to 254
• In December 2013, the FCA fined Lloyds Banking Group £28m for serious failings in their controls over sales incentive schemes; the largest ever fine imposed by the FCA or FSA for retail conduct failings
• The Department for Business, Innovation & Skills is currently considering whether US-style financial incentives for whistleblowing would be appropriate in the UK.
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