Whistle blowers' rewards 'too high'

THE City of London's ethics watchdog has hit out at the "perversely" high rewards being introduced in the United States for whistle-blowers on financial crime, which could have negative consequences for the Square Mile.

Simon Culhane, chief executive of the Chartered Institute for Securities & Investment, warned that legislation passed in the US in July will also cover American banks and brokers with UK offices, plus big UK corporates with depositary receipts traded on the New York Stock Exchange.

He cautioned that the Dodd-Frank Wall Street Reform and Consumer Protection Act risks encouraging whistle-blowers to delay coming forward so they can claim a bigger reward. It could also encourage those who witness wrongdoing in the UK offices of an American financial institution to approach US rather than British regulators so they can collect a bounty.

Culhane said: "Under the act, the US regulator will pay between 10 and 30 per cent of the fines they impose over $1 million (637,000) for successful enforcement to those providing original information.

"You can even see this level of rewards creating perverse incentives to let wrongdoing flourish initially. Whistle-blowers might be tempted to think they should wait till the crime goes even further before informing the authorities. That way the fine may be more severe."