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6 September 2013

Mis-selling of credit card protection policies is the latest allegation of systematic wrongdoing to hit some of the largest banks. With £1.3 billion set to be paid out in compensation, the scandal raises even more doubts about the ethics of the banking industry.

Just when we may have thought the banks could not have any more dark secrets up their sleeves another big one tumbles out. It appears that they should be given very little credit for the way they have been handling their credit card business.

Thirteen banks and credit card firms and a card insurance firm are now going to have to pay out an estimated £1.3 billion in compensation to a total of seven million people. Each of these people will receive an average of £185 for being mis-sold credit card and identity protection policies. The Financial Conduct Authority (FCA) has announced that the firms involved have agreed to the compensation package. Millions of letters were being sent out to affected customers at the end of August with pay-outs due to begin in Spring 2014.

According to reports, Barclays – the UK’s largest credit card operator – will be paying out about £100M in compensation. Barclays and the other fi rms involved stand accused by the FCA of giving customers misleading and unclear information about the policies which led to them buying cover that either was not needed or was to cover risks that had been greatly exaggerated by sales staff.

The compensation scheme has to be voted on by customers and approved by the High Court before it can go ahead. Customers will then have to complete a claim form. The scheme will be open to anyone who bought or renewed such policies from January 2005 onwards.

Controversy over the mis-selling centres on how people received their new credit cards with stickers on them that prompted them to phone a CPP hotline to activate their card. During such calls, CPP staff would then try and sell the card protection policies that offered £100,000 of cover if the card was subsequently stolen and used fraudulently. What customers did not realise was that the banks cover people in such circumstances anyway, meaning that the policies were a pointless waste of money.

It would be better for all of us if we could be reassured that this was a well-intentioned mistake, a one-off that was the simple result of human error. But we can’t believe that because it is just one of a number of examples of large-scale wrongdoing by the banks. The cost of compensating customers who were mis-sold payment protection insurance (PPI) has now topped the £18 billion mark and Libor rate rigging is now leading to people being charged. Added to this, we have had what appears to be unethical deals involving interest rate swaps, penalties for money laundering and the seemingly never-ending (and never shrinking) issue of bankers’ bonuses. Some of what has gone on has become public knowledge due to the diligence of disaffected customers and consumer rights groups. But much of what has been discovered only came to light because someone who is – or at least was – on the inside decided to speak up. The whistle blower is often the only way that we will be in a position to find out exactly what has been going on.

Many in senior positions, whether it be in a bank, company or other organisation, have often regarded whistle blowers with a mixture of frustration and contempt. The whistle blowers are the ones who bring attention to activities that many within a body would prefer to keep under wraps. There can be little doubt that many people in the banks facing this latest £1.3 billion fiasco would much rather it had not come to light, as they would have preferred to happen with Libor, money laundering and all the other instances of banking malpractice we listed earlier. But instead of viewing whistle blowers with resentment, bankers and other senior business fi gures would do well to embrace their views.

Legislation that has come into effect in recent years has put companies and their senior personnel under greater scrutiny and made them more responsible for their actions than ever before. To take one example, the Bribery Act came into force two years ago, making any company with a UK connection liable if any of its staff, representatives, agents, third parties or partners are found to be involved in bribery anywhere in the world. Under the Act, punishments can include unlimited fines and up to 10 years in prison. So if you were a senior figure in a company, it would surely make sense to make an effort to be fully aware of everything that is being done by those working on its behalf. This is where a whistle blower can be of immense value. No one likes to hear bad news but being alerted to wrongdoing early by a whistle blower at least gives you a chance to put things right. Only finding out about wrongdoing when a prosecution is imminent is far less preferable.

The Bribery Act joins the Companies Act 2006, the Fraud Act 2006 and the Theft Act 1968 in making directors, managers or other senior company figures criminally liable for their firm’s wrongdoing if it was done with their consent, connivance or neglect. Consent indicates that the person must have had some knowledge of the illegal activity but connivance could amount to little more than turning a blind eye. Each case may be different but the principle will always be the same – not making the effort to know exactly what is going on in your organisation can be costly for you personally and your company. Whistle blowers can help a company avoid legal diffi culties further down the line. If we take the £1.3 billion credit card problem as an example, surely the scale of the fall-out could have been limited greatly if someone involved had raised their concerns and senior figures had acted upon it. In an era when the Serious Fraud Office (SFO) is looking to encourage self-reporting of misconduct or the recently announced deferred prosecution agreements, a company’s awareness of its wrongdoing and a desire to put it right may well be its saving grace. This is why whistle blowing may become of increasing importance.

Creating internal whistle blowing facilities is a delicate area that requires expert advice. Anyone looking to set such a process up in a company must be aware of the potential legal pitfalls and take time to consider what would work best in their workplace. Issues such as the confi dentiality of whistle blowers and the exact means by which wrongdoing is reported all have to be considered. The aim is to generate and maintain a culture of openness and communication by devising procedures to develop this. It can only be a success if senior company figures show a genuine commitment to giving staff and associates the chance to report their suspicions without fear of reprisal. Without this, whistle blowing will never develop into a viable way of nipping wrongdoing in the bud.

As those banks and credit card firms send out the millions of letters and brace themselves for paying out the £1.3 billion because of the mis-selling, it would be interesting to hear what those at the top now think of whistle blowing as a way of preventing rather than causing problems.


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