Proper protections for financial services whistleblowers

June 2, 2017

I welcome plans in the SNP Manifesto for a law to protect whistle-blowers in the financial sector who come forward with evidence of misconduct.

During the last parliament, I chaired an All Party Parliamentary Group pursuing justice for 1,500 investors who collectively lost over £100 million when the Connaught Income Fund crashed into administration in 2012.

The fund was launched in 2008, and was initially operated by Capita, one of the largest financial sector companies in the UK.

Capita withdrew from involvement with the fund in 2009, passing responsibility for the operation of the fund to the much smaller Blue Gate Capital.

Initially launched on the basis that it would lend well-secured ‘bridging finance’ direct to property purchasers for short periods, it later emerged that the fund had, from day one, loaned all of its funding to the TIUTA group of companies.

When American finance professional, George Patellis, took over as Chief Executive of TIUTA he quickly reached the view that many of the Connaught loans were unlikely to be repaid, and that to continue taking funds from Connaught in these circumstances amounted to fraud.

In early 2011, Mr Patellis took his concerns to the then financial regulator, the Financial Services Authority (FSA), which ignored his concerns. TIUTA received and lost tens of millions of pounds in additional funds from Connaught after the FSA met with Mr Patellis, before being placed in administration in 2012, with total losses exceeding £100 million, most of which remains unrecovered.

Since then, Mr Patellis has been unable to secure new posts in the financial services sector in the UK at the level of seniority he had achieved prior to becoming a whistle-blower, yet there is no provision for compensation for whistle-blowers such as Mr Patellis even if the information they provided proves accurate.

This being the case, I warmly welcome the proposal in the SNP manifesto for legislation to protect whistle-blowers in the financial services sector.

At present, we still appear to have an old-boys’ network, in which people who spot wrongdoing are encouraged to stay quiet for fear of jeopardising a lucrative career and being ‘shut out’, as happened to George Patellis.

After Brexit, the City of London financial services sector will face fierce international competition, as centres that are still within the EU bid for activities best conducted from within the wider EU market.

If City bosses fail to respond to the message of the 2008 crash and the revelations about LIBOR rigging, misselling of interest rate swaps, and other fraudulent practices that have been revealed in recent years, the post-Brexit UK economy will be in great jeopardy.

When the British Government asks their EU counterparts for special treatment for UK financial services post-Brexit, the UK’s record of punishing whistle-blowers in financial services and rewarding the wrongdoers will certainly be a factor in the positions taken by some EU Governments.

Notes

In November 2016, the Complaints 

Commissioner upheld a complaint by Mr Patellis about the actions of the FSA. The Commissioner’s findings, which have been described as ‘damning’, can be found here:

http://fscc.gov.uk/wp-content/uploads/FCA00114-Patellis-George-Stage-2-Final-Decision-24-11-16.pdf 

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