It appears that "unmasking" is not merely a scandalous ploy employed in US politics.
Overnight, Barclays CEO Jes Staley has unleashed the latest banking scandal, following reports he is facing major sanctions from UK regulators and a “very significant” pay cut for trying to uncover the identity of an internal whistleblower. The former JPM veteran is being investigated by the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority for breaking rules surrounding the treatment of whistleblowers, the FT reports. The bank’s policies for handling whistleblowing are also being investigated.
The Barclays CEO tried to unmask a tipster who alerted the bank to a personal matter involving a senior executive the bank said on Monday sending its shares lower as much as 1.2% . An investigation by law firm Simmons & Simmons LLP concluded that Staley “honestly, but mistakenly” believed that it was permissible to identify the author of the letter. The case is also under scrutiny by the Department of Financial Services in New York, the person said.
As the FT elaborates, the allegations of attempted "unmasking" are the result of an attempt by Staley to protect a Barclay’s colleague who was subject to what he deemed an “unfair attack” by the whistleblower, who sent an anonymous letter to the board last year raising concerns about a recently-recruited “senior employee” and Mr Staley’s involvement in their recruitment. A second letter was also sent to one senior executive. As Bloomberg adds, Staley requested that the bank’s Group Information Security team identify the author and the team asked for and received assistance from U.S. law enforcement agencies, according to the statement. The attempt to identify the author wasn’t successful, the bank said.
A person familiar with the probe confirmed that the individual who Mr Staley had been trying to protect was Tim Main, a New York-based banker who joined Barclay’s in June 2016 to be chairman of the investment bank’s financial institutions group. Although Mr Main came Barclays from Evercore, he had previously spent 20 years at JPMorgan, where he rose through the ranks along with Mr Staley. Mr Main could not immediately be reached for comment.
Today's revelation is a significant blow to the British bank, which has spent much of the last five years attempting to repair its ethical reputation following its role in the Libor rigging scandal. In 2012, it was forced to pay £290m in fines to US and UK regulators for attempting to manipulate the interbank rate.
Staley has admitted his error and formally apologized to the board, Barclays said.
“I have apologized to the Barclays Board and accepted its conclusion that my personal actions in this matter were errors on my part,” Staley said in the statement. “I will also accept whatever sanction it deems appropriate. I will cooperate fully with the Financial Conduct Authority and the Prudential Regulatory Authority, which are now both examining this matter.”
“I am personally very disappointed and apologetic that this situation has occurred, particularly as we strive to operate to the highest possible ethical standards,” said John McFarlane, Barclay’s chairman.
The hit to Staley's pay from the improper attempt to uncover the whistleblower will be decided only after the regulators’ investigations are complete, Barclays said. Last year, Staley made £4.2 million.
Staley's future as this point appears uncertain: as Bloomberg notes, Barclays has made excellent progress under Staley and his removal at this stage would hurt the bank’s prospects for further improvement, Shore Capital analyst Gary Greenwood wrote in a note to investors. Given the bank’s history of regulatory misdemeanors, the latest investigation is a “very significant embarrassment” for the board as it tries to rebuild Barclays’s reputation, he said.
Under Staley, Barclays has slashed about 6,000 jobs in the last six months and cut dividends after fourth-quarter profit fell. The attempt to identify the whistle-blower came to the attention of the Barclays board early this year after an employee raised concerns. The board notified the FCA and the PRA and other authorities.
“The Board has concluded that Jes Staley, group chief executive officer, honestly, but mistakenly, believed that it was permissible to identify the author of the letter and has accepted his explanation that he was trying to protect a colleague who had experienced personal difficulties in the past from what he believed to be an unfair attack, and has accepted his apology,” Chairman John McFarlane said in the statement.
Barclays has taken a more aggressive posture toward government allegations than some of its rivals. While other lenders settled similar claims, Barclays balked at paying the amount the government sought to resolve allegations that it deceived investors who purchased $31 billion of mortgage-backed securities a decade ago, before the housing bubble popped. The bank is now defending a lawsuit brought by the U.S. Justice Department in December over the matter.
The bank has called those allegations “disconnected from the facts.”
If found to have violated whistleblower laws, Barclays could face penalties from regulators.