Financial Whistle-Blowing Under Siege: Lloyds and the Latest Attack

This first of three brief posts today looks at a subject we have covered here in Financial Regulation Matters a number of times, and that is the concept of a financial whistle-blower. The story we have covered most is the story of Jes Staley, the CEO of Barclays (here and here), but although that case resulted in a (relatively) small fine, news recently suggests that the protections afforded to financial whistle-blowers need to be strengthened much more, both in light of the recent actions of leading members of the financial services but also because of the period that we are in – making sure transgressions in the financial sector are identified and expressed (either publically or to regulators) is crucial as we move away from the last financial crisis.

There are a number of issues affecting Lloyds at the moment, but most stem from their takeover of HBoS and the fraud that was uncovered within a division in Reading. We have covered this story a number of times (here), but the sentiment put forward by Lloyds is that the transgressions all took place before the takeover, and that they had no knowledge of the purposeful destruction of many SMEs. It was reported as far back as October 2017 that Lloyds’ behaviour towards their whistle-blowers was ‘disgraceful’, firstly by making those whistle-blowers ‘prove they were victims’, and then in January 2018 it was reported that a whistle-blower who had formulated a damning report into the scandal in 2013 had been made redundant without the necessary compensation. More recently, the Financial Times has reported that Lloyds tried to ‘silence’ the whistle-blower and that, contrary to the bank’s claims, the Reading Fraud had been discussed in internal emails within Lloyds as far back as February 2008. The effect of this is that Lloyds has been catapulted into the limelight over the protections it offers to whistle-blowers, which of course is a vital component against ‘white-collar crime’.

The Police Commissioner’s suggestions have been refuted by the Bank, but with investigations continuing into the scandal there is a likelihood that more revelations will surface regarding the knowledge Lloyds had which will then impact upon the perception of actions they have taken since. This is an extremely negative chain of events, but there is one positive in that the concept of the whistle-blower has been forced into the limelight at a time when that concept is as vital as ever. When one considers the cyclical dynamic of the economy, then one can see that we are potentially moving into a phase whereby ‘amnesia’ sets in and trust is restored in the very same system that created the last crisis – that phase is not quite upon us yet, but it is not far. Claims to act in a counter-cyclic manner in terms of regulation are very sensible and would eliminate the current rate of a crisis of some sort occurring every ten years (arguably), but the chances of those claims being recognised and implemented as the calls for ‘growth’, ‘development’, or another buzz word that is consistently used to enable the financial sector to return to its ways are very slim indeed, unfortunately.

Keywords – Lloyds, HBoS, Banking, Fraud, Whistle-blower, @finregmatters.