The Commission has brought a number of actions seeking to protect whistleblowers. One action, for example, was brought against a firm which tried to bar former employees from talking to regulators by inserting provisions in its severance clauses while retaliating against a whistleblower. In the Matter of SandRidge Energy, Inc., Adm. Proc. File No. 3-17739 (December 20, 2016). Another centered on similar allegations about restrictions in severance clauses but also included allegations that the firm delayed legal fee payments under an indemnification agreement for the attorney representing a former executive who had received whistleblower information and declined to state if his client was a whistleblower, citing at one point Exchange Act Section 21F. In the Matter of HomeStreet, Inc., Adm. Proc. File No. 3-17801 (January 19, 2017).
None of the Commission’s actions to date have centered solely on allegations that it was improper for an executive who was named in a whistleblower report to conduct an inquiry about that report. That is the focus of the actions recently taken in the U.K. by the Financial Conduct Authority or FCA and the Prudential Regulation Authority or PRA. Together the two regulators imposed a fine of £642,430 on James Stanley, Chief Executive of Barclays Group. Special requirements were also imposed on the bank.
The action stems from an anonymous letter received by Barclays in June 2016. The letter claimed to be from a shareholder of the bank. Some of the allegations in it concerned Mr. Stanley. This, the FCA and PRA concluded, constituted a conflict for Mr. Stanley in view of which he “should have maintained an appropriate distance.” In fact he did not. To the contrary Mr. Stanley took steps to try and identify the author.
Continuing to conduct an investigation in the face of a conflict was a breach of the requirement to act with integrity, the regulators concluded. In view of the conflict Mr. Stanley should have realized that he “needed to take particular care to maintain an appropriate distance from Group Compliance’s investigation,” according to the two U.K. regulators. There was a risk, under the circumstances, that Mr. Stanley would not be able to exercise impartial judgment. Once the Group Compliance investigation commenced, it was important that it maintain control over the inquiry.
This is the first case brought under the Senior Managers Regime. The inquiry concluded that Mr. Stanley made “serious errors of judgment.” Accordingly, the penalty imposed was 10% of his relevant annual income. The fine does consider that Mr. Stanley settled at an early stage. He was also censured.
The two regulators also expressed “some concerns about the firm’s whistleblowing systems and controls and have concluded that these require enhanced monitoring and scrutiny” stemming from Mr. Stanley’s actions. In view of those concerns, Barclays is being required to report any whistleblowing allegations made against senior managers as well as those where the bank has tried to identify the whistleblower. Each year under the Senior Managers Regime officials will have to attest to the soundness of the whistleblowers systems. This will continue until 2020.