Tuesday 17 February 2009

ANOTHER Whistleblower Tale: it's the FSA, Lloyds TSB and Brown - Again !

Here’s an interesting conjunction of people and events, redolent of other recent banking revelations.

In 2000, Scottish Widows de-mutualised, being bought from the policy-holders by Lloyds TSB. In common with other assurance companies (most famously Equitable Life), SW had exposure to the Guaranteed Annuity Rate problem.

The exact purchase-price was to be calculated after transfer to Lloyds TSB according to a formula, and at a point in time was estimated in the prospectus to be £5.4 billion, subject to a cap of £6.1 bn. Part of this was to be held in a new 'Additional Account'.
As explained on page 23 of the Demutualization and Transfer Policyholder Circular:

the additional Account [is] intended to protect the With Profits Fund against the consequences of a future fall in interest rates, including increases in the costs on meeting policy guarantees … the balance of the Additional account will be paid out over time as a terminal bonus on Transferred With Profits Policies, to the extent not needed to meet contingencies ….

Would ordinary SW policy-holders have understood from this small print that (a) it all hinged on the outcome of the then-pending Equitable Life court case (not mentioned); and (b) as much as £1.5 billion (as it actually transpired in 2002) would end up being used in this way and therefore not paid out to them by way of a terminal bonus ? (amounting to nearly 30% of what they might have been expecting)

I could argue it both ways. However, whistle-blower Graham Milne of Lloyds TSB came to the view that the Circular illegally misled policy-holders. He was duly suspended and, one year later, fired – sound familiar ?

Just before he was fired, the FSA responded to his claims, dismissing them - doubtless to the satisfaction of Lloy
ds TSB. The FSA Managing Director responsible was Carol Sergeant, a personal appointee of Gordon Brown’ssound familiar ?

Just as Milne was being fired, guess what happened to Sergeant ? One month after she dismissed Milne’s complaint, she was hired as Chief Risk Director at … Lloyds TSB ! Six months later, for good measure, she was awarded the CBE: and then made a Trustee of the charity Public Concern at Work (motto: Making Whistle-Blowing Work). After all, she’d been responsible for launching the FSA’s whistle-blower policy !!

I am not making this up.

As Nick Robinson blogged recently:
beware the City merry-go-round


Blogger seems to have buggered the links - but you can easily see what they are meant to be


Anonymous said...

In other walks of life, the default interpretation would be that someone was bought and sold. Happily, moral standards are so much higher in finance that we may agree to reject such an offensive notion.

Anonymous said...

It seems that us ordinary plebs can do nothing more than hold on tight and pray.

I fear that there is much more still hiding in the woodwork, rather like Death Watch Beetle.

Steven_L said...

I'm never trusting this lot with my money again if I can possibly aviod doing so!

Anonymous said...

This is a classic case of "revolving door". Carol Sergeant has in recent years worked for the FSA

then for Lloyds TSB as "Chief Risk Director"


and now she is back at the FSA!!!

Nick Drew said...

dearieme - how right you are

Yokel, Steven - and you, too

anon - I'd heard she was back at the FSA but couldn't find a press release or link: can you provide ?

Anonymous said...

You're missing a colon in the links.

Or take out the "http//" bit entirely.

Not blogger's fault!

Nick Drew said...

anon - don't think so; I pasted all the links exactly as a thousand times before

when the oddity was pointed out & I went back in to edit them (see the first and last links), it buggered them in an even more creative manner !

I'm either missing something here or offending people in High Places

Faux Cu said...


yty this one

She is still with LL-TSB as chief Risk Analyst whooooooopps after the big loss from HBOS!

Faux Cu said...


Faux Cu said...

google it yourself!

Anonymous said...

This is getting ridiculous-an important post that needs to be more widely available. Where is Graham Milne now- hope he managed to get another job.

Anonymous said...

Thanks for the kind thought. I was on incapacity benefit due to stress after I was sacked but came off because it seemed like an acceptance that I couldn't get better. I was then unemployed until 2008 but have managed to get a couple of temp jobs since then. I am currently unemployed. I was an internal auditor with Lloyds TSB by the way.

Anonymous said...

Your views are sought on this matter Mr Milne.
What is your view of what has occurred?

Anonymous said...

Do you mean the banking crisis generally or the Scottish Widows demutualisation or something else?

Anonymous said...

Ms sergeant's appointments.

DorsetDipper said...

Where are the non-exec's in all this?

Surely one outcome of this should be a stronger presence of the non-exec component. Risk and Finance departments should have at least a dual reporting line to give them more independence from the people they are meant to be monitoring.

Anonymous said...

At the very least Carol Sergeant knew that there was a serious conflict of interest in someone in her position handling a complaint relating to a company with whom she had already accepted, or knew she was on the point of accepting, a senior post. That she should CONSCIOUSLY act in such a way is a sacking matter. It demonstrates quite clearly that she is not fit to be a person authorised by the FSA to occupy a position of trust within a major bank - so she should be sacked from Lloyds Banking Group and have her authourisation withdrawn. Beyond that there are two things: (1) there is prima facie evidence of a bank effectively 'buying' the acquiesence of a senior regulatory offfical - this justifies an enquiry (sorry, police investigation), and (2) the whole situation demonstrates that the regulator and the banks have a too cozy relationship, which is not in the interests of effective supervision.

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Anonymous said...

Why have the bottom two comments become unintelligible characters?

Conspiracy theorists must be having a field day!!!