However, to some of us cynics, the official backing given to honest whistle-blowers, that is those who are not speaking out simply to settle scores, must be guaranteed greater protection for putting their and their families’ futures on the line.
Although we will like to think all right-thinking people will not hesitate to blow the whistle on a major injustice, often to take that step calls for sturdy self-sacrifice.
All kinds of people rightly get protection under the law for coming to the assistance of the state, which says quite a lot about the level of our collective humanity, but sometimes we are driven to believe that whistle-blowers are not protected under the spirit of any relevant legislation. They are simply tolerated.
However, the main regulatory, political and legislative concerns with financial products are with consumer protection and one of the key backdrops in protecting ordinary people is the safety net of whistle-blowing. The Public Interest Disclosure Act does not go far enough.
If the regulator, therefore, avoids taking a lead on the design of new products, or at least giving a stamp of approval to them mainly because of the fear of assuming liability, then its claims to be ‘professionalising’ the sector falls flat.
Trust is the most important element in the adviser/consumer relation, and if that is lost, for whatever reason, then it would set the industry back by at least a decade.
And we would all agree that as far as the consumer is concerned, financial services are on the life-support machine.
With pension, endowment and PPI mis-selling, the dark clouds over commission in its new guise, added to grossly bad supervision of Northern Rock, Royal Bank of Scotland, Co-operative Bank, and more, pre-sales approval of new products by the regulator is a small price to pay.
We have previously given the pharmaceutical industry as a good model for financial products, and we repeat it again.
New medicines have to go through a number of legal/regulatory hoops before they are passed as fit for human beings.
They first emerge from the primordial soup of research and development, then are tested on animals or a non-human substitute, then go through trials with volunteer humans, then are permitted.
They are allowed on to the market under strict conditions, including those products which can be sold in corner shops and supermarkets without conditions, those that can be sold but the seller must first ask if the buyer is taking any other medication, and those that can only be sold under prescription.
Throughout their lifetime these medicines are carefully monitored and any negative reactions, early or late in their usefulness, are reported to the appropriate medical authority.
Another good example is the motor car industry, in which the new vehicle is designed and road-tested under strict regulatory conditions.
The showroom salesperson, who the general public tend to deal with, is not commonly an engineer and almost never the designer of the product.
In repeating the hyperbole associated with the vehicle’s performance, he/she is simply repeating what he/she has been told to say in the marketing literature.
But speed and roadworthiness are controlled by road traffic legislation and the other bells and whistles are covered by the warranty and wider consumer protection. No decent manufacturer nowadays hides behind the fiction of caveat emptor.
At no stage do we expect ordinary members of the public to play at amateur medical scientists or motor engineers, so why do we expect the buyers of financial products to play at amateur actuaries when quite often chief executives are not familiar with the actuarial assumptions underlying their own products?
Protective legislation for whistle-blowers who have acted in the public interest, even if their allegations are proved wrong, must be given full protection, including job security or unlimited compensation if dismissed.
Either this full protection, or people, concerned about what they perceive to be institutional wrongdoing, will hesitate to come forward.
Whistle-blowers almost always put their careers on the line, and quite often also the welfare of their families, so it is not an action that is taken lightly.
In the real world we know all so-called whistle-blowers are not doing so for the best of motives.
Many of them want to settle scores, either with the organisation or with senior or other influential individuals within the organisation.
Others do so for all kinds of mental reasons, including lack of career progression, but in every instance serious allegations in the public interest must be investigated.
In financial services, it is not too wild to suggest that quite often senior managers, technocrats and others are aware that products often do not deliver what the marketing jargon claims, what it promises on the tin.
The environment in which honest people can even contemplate raising the alarm must come from the executive offices of the City regulatorSometimes, hopefully not too often, some of this inside information is passed on to those in distribution who prefer the comfort of corporate entertainment than the transparent truth of raising the alarm.
In the final analysis, the environment in which honest people can even contemplate raising the alarm about perceived wrongdoing must come from the executive offices of the City regulator.
No favouritism, no malice, just clear transparency and the protection of the end client must be the driving force.
Hal Austin is editor of Financial Adviser
