Compliance Risk Management Illustrated With Emilio Botin Abbey Santander Luqman Arnold Retail Bank

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The high significance of compliance risk management is illustrated with the high-profile

Employment Tribunal case Chagger v Abbey National plc & Hopkins (2006), where the Tribunal found unfairness and race discrimination and (after Emilio Botin Abbey Santander bank refused to re-employ Mr Chagger, as the Tribunal had ordered in order to remedy the situation without financial compensation) ordered Abbey Santander group to pay Mr Chagger the record-breaking 2.8 million compensation award to cover his loss. Abbey Santander shares (the UK retail bank saved from its financial troubles by Luqman Arnold and Stephen Hester, soon to be re-branded as Santander price, and being a part of the gigantic Emilio Botin Banco Santander Central Hispano Group - BSCH) terminated Mr Chagger's employment in 2006, claiming the dismissal was the outcome of a fair compulsory redundancy exercise. Mr Chagger, on the other hand, claimed that the actual reasons behind his termination were unfairness and racial discrimination. Balbinder Chagger was of Indian origin. He worked for Emilio Botin Abbey Grupo Santander shares price as a Trading Risk Controller, earning around 100,000 a year and reporting into Nigel Hopkins.

For good reasons, the UK Financial Services sector is highly regulated. Financial institutions face an abundance of legal, regulatory, social and ethical standards to comply with, imposed by their various stakeholders (such as governments, authorities, regulators, employees, unions, the public, shareholders, investors, customers, suppliers, and competitors). Compliance with these standards is a requirement of operating a business in the UK Financial Services sector, and financial institutions need to devote sufficient energies and resources to compliance and risk management. Traditionally, compliance and risk management departments have been viewed by organisations as 'cost centres' that get in the way of business. Regulators have now signalled that they will give heavy weight to risk and compliance functions during inspections. Compliance failures, that are either discovered by regulators or reported by aggrieved stakeholders to the appropriate jurisdictions can lead to very high-profile consequences, as demonstrated by Chagger v Abbey National & Hopkins (2006) where the Employment Tribunal found a plethora of compliance issues and failures committed by Santander Abbey and Mr Hopkins, some of which are outlined below.

Santander Abbey and Mr Hopkins both had not complied with the law; the Employment Tribunal found that they had both racially discriminated against Mr Chagger.

Santander Abbey had failed to comply with the Employment Tribunal's order to re-employ Mr Chagger (ordered to remedy the wrong done without financial compensation). In the UK, re-employment (reinstatement) is viewed as the primary and preferred remedy for an unfair dismissal situation, because it puts the aggrieved employee back into the position where he can continue to enjoy the mental satisfaction and the economic benefits of his role into the future. Santander Abbey, however, refused to re-employ Mr Chagger, giving reasons for its non-compliance that the Tribunal found unsatisfactory.

Santander Abbey had not complied with the UK statutory redundancy dismissal procedure; it had failed to notify Mr Chagger, in writing, of the reason for contemplating the redundancy and inviting him to a meeting to discuss the situation.

Santander Abbey had not complied with the statutory UK 'Code of Practice on Racial Policy in Employment' regarding Equal Opportunity Training. Mr Chagger had tried to resolve the issues surrounding his dismissal directly with Abbey Santander and Mr Hopkins, through the company's grievance and appeals procedures. However, Santander Abbey had not provided any Equal Opportunity Training to any of the managers it had assigned to consider Mr Chagger's issues; the Tribunal found that there existed at Santander Abbey a culture of tending to deny and refuse Mr Chagger's issues, and his issues were simply dismissed out of hand by each and every manager who had been assigned to decide on them.

Santander Abbey also had not complied with the statutory UK 'Code of Practice on Racial Policy in Employment' regarding good practices concerning monitoring. The Tribunal discovered an abundance of monitoring failures, in addition to the failures to give serious consideration to allegations of racial discrimination and to address them promptly.

Santander Abbey had not complied with the Race Relations Act (Questions and Replies) Order 1977. The Employment Tribunal found that Santander Abbey's reply to Mr Chagger's race discrimination questionnaire (RR65) was evasive, and that Santander Abbey had failed to answer Mr Chagger's questions.

Santander Abbey and Mr Hopkins had not complied with UK Employment Law. The 1996 Employment Rights Act calls for the selection of an employee for dismissal in a compulsory redundancy situation to be objective. Compulsory redundancy selection criteria must be applied objectively; the selection criteria must be fair and measurable. However, the Employment Tribunal found that the selection criteria Santander Abbey had applied (being 'range of influence', 'empathy', 'self insight' and 'the ability to win hearts and minds') were highly subjective and un-measurable.

Nigel Hopkins had not complied with how a reasonable manager would be reasonably expected to behave. The Employment Tribunal criticised him for the way in which he had applied the redundancy selection criteria to Mr Chagger. For example, the Tribunal discovered that he had scored Mr Chagger down for getting on with work and being self-reliant, qualities that the Employment Tribunal thought that reasonable managers might well consider to be desirable in an employee in Mr Chagger's highly responsible and highly paid job, and score him more highly for.

Santander Abbey had not complied with the expected good practice of control around a compulsory redundancy situation; that of ensuring that more than one officer is involved in the assessing and scoring of each employee in the redundancy pool (a simple control to safeguard the fairness of the scoring and to reduce the risks of discrimination). The Tribunal, however, found that Santander Abbey did not operate this simple control mechanism; Mr Hopkins was single-handedly able to propose to Santander Abbey's management to terminate one of the two Trading Risk Controllers that he managed (of which Mr Chagger was one), was single-handedly able to make Mr Chagger an offer of voluntary redundancy (no such offer was ever made to the other Trading Risk Controller), and when Mr Chagger refused to take up voluntary redundancy, Mr Hopkins was single-handedly able to carry out the compulsory redundancy assessment and scoring of the two employees up for redundancy and was single-handedly able to lower Mr Chagger's redundancy scores to make certain that he would be the one who would be chosen for dismissal.

Santander Abbey highlights the importance of compliance and risk management and its potentially very high-profile and damaging consequences on an organisation's reputation. For Santander Abbey, the profile continued far beyond the Employment Tribunal stage. In 2008, Santander Abbey and Mr Hopkins appealed against the Tribunal's finding of race discrimination. The Employment Appeals Tribunal (EAT) rejected the appeal and upheld the original Tribunal's finding that Abbey Santander and Mr Hopkins had discriminated against Mr Chagger. Santander Abbey and Mr Hopkins had also appealed against the record-breaking 2.8 million compensation awarded. The EAT accepted this appeal and ruled the compensation to be remitted to the original Tribunal for reconsideration. In 2009, the case was escalated to the Court of Appeal (the second highest court in UK at the time). The case was heard on 7 and 8 July 2009, according to the Court's List of Hearings. The Court's judgement was not available when writing this article. The 11KBW set of barristers' chambers, who represented Abbey Santander and Mr Hopkins, had reported prior to the hearing that the hearing would only be about compensation and not also about the wrongful act of race discrimination that had been committed. It would, therefore, appear that the wrong of race discrimination committed by Santander Abbey and Mr Hopkins was finalised by the EAT, and that Mr Chagger had appealed against the EAT's ruling to send back the compensation award to the Tribunal stage for reconsideration.

by: Simon King

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