Whistleblower Hotlines: The Effect of Uncapping Bonuses in the Financial Sector

Whistleblower Hotlines: The Effect of Uncapping Bonuses in the Financial Sector

Introduction

A plan to remove the cap on bankers' bonuses is amongst a few mini-budget policies to remain after most measures were reversed by Jeremy Hunt, the new Chancellor of the Exchequer.

Kwasi Kwarteng said in September the cap would be lifted as part of a shake-up of rules governing the City of London.

From a whistleblowing hotline perspective, a belief exists that scrapping the cap could potentially lead to increased reports of wrongdoing - from money laundering to fraud - as greater financial reward can motivate greater risk-taking.

In this article we’ll reflect on the history of bankers' capped bonuses, the potential consequences of uncapping them for anonymous whistleblowing and share tips on how to ensure your business is prepared for the coming change.

A Short History: Bonuses in the Financial Sector

The bonus cap within the financial sector was introduced by the European Union in 2013, in response to the 2008 financial crisis.

The current rules mean that bankers’ bonuses are capped at double their annual salary but can be increased further with shareholder approval.

What led to the 2008 financial crisis, and whether it could have been anticipated and prevented, has been debated at length.

What is clear from that debate is how bankers’ bonuses had become “emblematic of an imploding banking industry that was fueled by a culture based on greed and an unbridled pursuit of profit” as Quillon Law explains.

It was this culture and an under-equipped regulatory infrastructure that “allowed profits and performance to be put ahead of market and customer protection.”

This is why many thought abolishing the cap on bankers’ bonuses in the UK was very unlikely. So why the change of tack?

Mr Hunt said the previous policy didn't work and has argued that the government would get more tax from rich bankers by removing the cap.

The rationale behind this thinking is that by scrapping the cap it will encourage banks to invest in London rather than other finance hubs within the EU (such as Paris or Frankfurt) or globally.

As MacFarlanes reports, JP Morgan, Goldman Sachs, Morgan Stanley and Bank of America have all increased their presence in Paris in recent years - leading to concerns that London is losing its status as Europe’s financial centre.

The potential impact of uncapped bonuses on whistleblowing systems

In terms of businesses we work with within the Financial Sector, they tend to fall into two main categories (see below) each with their own potential challenges in the wake of uncapped bonuses.

• Established and online banks: These online and trusted high street names have dedicated teams and ethics hotline services for preventing, minimising and investigating fraud.
  
  While a robust whistleblowing system is in place within these businesses we speculate that the uncapping of banker’s bonuses could potentially lead to an increase of fraudulent activity. This could leave these teams open to potentially missing other reports of wrongdoing as their workload increases.
  
  The question is, does your business have the capacity to deal with an uptick in reports across the board, ensuring nothing slips under the radar?
  
  
• Asset Management and Investment Firms: Led by partnerships it is a mixed picture as to whether these types of firms have a robust whistleblowing system in place.
  
  Often these firms will seek outside support due to a lack of expertise and resources to deal with reports of, and investigations into, wrongdoing.
  
  ​​English law says that “fraud unravels all”. We’re aware that the uncapping of bonuses could potentially lead to fraudulent activity by asset managers and investment bankers - who benefit most from the largest payouts.
  
  With this in mind, it is important to check that your firm has everything it needs in place to handle and deal with fraudulent activity: to protect your firm’s future and safeguard your clients and employees.

How Safecall can support you

All businesses, irrespective of their size, will suffer from fraud or wrongdoing at some point.

Unfortunately, more often than not, the fraudster is a member of staff. This can affect not only morale and your reputation but can involve financial losses and damage to your anti-fraud capability.

However, there are steps Safecall can help you take to reinforce your existing systems, by taking a proactive approach can help detect and minimise wrongdoing. 

• Critical Friend - We can offer advice and critical analysis of ongoing investigations into wrongdoing to help advise on the direction of the case and the best approach to move forward - to act as an extension of your own investigation team.
  
  
• Managed Investigation - You can set the terms and our whistleblowing experts will manage the day-to-day running of the investigation - leading your team with oversight of the whole process to ensure your investigations are effective.
  
  
• Desktop Review - Once an investigation has finished we can provide advice and critical analysis to inform future investigations. This would include an audit to help you improve your current processes to ensure the effective results and assurances moving forwards.
  
  
• Whistleblower Training - Internal training and awareness of your whistleblowing system is imperative to its success. This approach ensures your staff, at all levels and across the business, have an in-depth understanding of your processes and procedures.
  
  
• Outsourced Interviews - Our experienced team can oversee the whole interviewing process within the investigation. We will provide experienced interviewers, interview notes and a comprehensive report.
  
  
• Outsourced Whistleblower Investigation - If the best option for your business is to fully outsource the investigation process we offer independent investigation services - from carrying out interviews to creating an independent unbiased written investigation report.
  
  

Our dedicated team is on hand to discuss any measures you might like to take in more detail if you wish.

Call us on +44 (0) 191516 7720 or drop us an email at info@safecall.co.uk

We're always happy to share our expertise if it will help guard your business reputation and look after the safety of your employees.

About SafeCall Ltd

Safecall hotline services are an external, outsourced provider to businesses and organisations around the world.

For over 20 years we have been providing a specialist and independent service that helps to protect business and keep employees safe. We have a people first ethos, with all our call handlers having first-hand experience of the issues reported.

We pride ourselves on our style, which is conversational and empathic. None of our calls are scripted and we are experts at taking high quality reports.

Safecall operates from a UK call centre, 24 hours a day, 7 days per week all year round.  Serving businesses in the UK, Europe and over 150 countries around the globe, conversing in over 170 different languages.

We help businesses and organisations who want to tackle a variety of whistleblowing issues including potential racism, sexism, fraud, discrimination, bribery, health and safety violations, modern slavery, bullying, and violence in the workplace.

We also offer highly skilled investigations training and bespoke support that utilises our expertise.

We are proud to be a Law Debenture company. Law Debenture was founded in 1889 and is listed on the London Stock Exchange.  It is recognised globally for its expertise in longstanding investment trusts and is a leading provider of independent governance and transactional support services. Clients include large corporates, law firms, banks or funds, private equity, SMEs, hedge funds, start-ups, and private clients.

Sources

[1] https://quillonlaw.com/could-removing-bankers-bonus-caps-lead-to-another-financial-crisis/

[2] https://blog.macfarlanes.com/post/102hxto/bankers-bonuses-the-cap-is-scrapped