The scandal over the widespread manipulation of Libor and its equivalents (Euribor and Tibor) has resulted in loads of official hand-wringing. Yet the public’s patience with the Too Big to Fail Banks is long gone, and belief that the officialdom will adequately punish past misdeeds and deter future malfeasance seems to be less than zero. Even if regulators’ spirits are willing, their “flesh” — in the form of the financial, political and human resources needed to conduct thorough investigations — is weak. (UK Serious Fraud Office, I’m looking at you.)
The truth is that there’s only one group of people who have any hope of knowing what’s really going on within a firm, and where the bodies are buried: employees. Given this a recent report published by the U.S.-based whistleblower advocacy firm Labaton Sucharow is quite revealing.
Labaton Sucharow conducted 500 online surveys with senior employees in the financial services industries in the US and the UK. LS questioned respondents about the personal ethics of their co-workers, the broader culture of their firms and their perceptions of regulators and law enforcement. The overall aim of the survey was to find out whether integrity in financial services was “any better today than it was four years ago.”
Short answer: probably not. Some direct quotes from the final report:
- 24% of those surveyed believed that the rules may have to be broken in order to be successful.
- 39% of total respondents believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.
- 16% of total respondents were at least fairly likely to engage in insider trading if they could get away with it.
The last point seems quite grim, but it may also hold the seeds of a potential solution because it illustrates just how much money continues to be a motivating factor in this industry. Can we harness this for the greater good?
More from the report, with my emphasis:
We asked industry professionals if they would report misconduct in the workplace if it could be done with the factors present in the SEC Whistleblower Program—anonymity, employment protections and a monetary award. A startling 94% of all financial services professionals would do so. Equally encouraging, 90% of all respondents would encourage a spouse or loved one to report misconduct.
However, only 44% of financial services professionals were aware of the SEC Whistleblower Program. Not surprisingly, there was a 10-point differential between US and UK financial services professionals; only 39% of UK respondents were familiar with the SEC Whistleblower Program compared to 49% of US respondents.
There are already some interesting success stories regarding whistleblower bounties from other programs. Shouldn’t the SEC pour more of its resources into better publicizing its Whistleblower Program? Television, online ads, skywriting — it should put on a full-court press to get the word out. Pay-for-performance is a very familiar concept in financial services. The SEC is smart to utilize this, but clearly needs to bring its message to the wider world.