Whistleblowing - to pay or not to pay?
A culture of whistleblowing is beginning to take hold in the US, with recent measures put in place to protect and incentivise informers, but is the UK lagging behind?
I met recently with Jordan Thomas, a partner at New York law firm Labaton Sucharow and former assistant director of the Securities & Exchange Commission (SEC).
He explained how, in the US, recent measures to protect the anonymity of whistleblowers and financial incentives, which could see awards of between 10-30% of the amount collected by the regulator, have helped enforcement.
The SEC’s Whistleblower program rewards insiders who provide the regulator with high quality tips that lead to successful enforcement,
During 2011, the SEC brought 735 enforcement actions, obtaining orders for $2.8 billion (£1.8 billion) in penalties and disgorgement. The Financial Services Authority (FSA), in comparison, collected £70.7m in financial penalties in the 2011-12 financial year.
In the UK, there is a somewhat different approach where enforcement largely appears to come as result of FSA inspections. (blog continues below)
Thomas believes the guarantee of anonymity that stops informants from being identified allows them to report malpractice in safety.
He says the financial incentive can be instrumental in encouraging people to come forward, just as in other situations where rewards are offered.
If there was a more active whistleblower programme in the UK, might mis-selling scandals be reduced?
Have you looked at investment trusts more since RDR?