Compliance Risk Lessons From Abbey National ( Santander )

The importance of compliance with legal, regulatory and other standards businesses face is demonstrated by the high-profile Chagger v Abbey National plc & Hopkins (2006) UK legal case. Abbey National (the Spanish-owned UK bank due to be re-branded as Santander, and being part of the Banco Santander Group) had terminated Balbinder Chagger's employment in 2006, stating redundancy as the reason. Mr Chagger, of Indian origin, reported into Nigel Hopkins and earned around £100,000 per annum. Mr Chagger believed the true reason behind his dismissal was racial discrimination. The Employment Tribunal found race discrimination and eventually awarded the record breaking £2.8 million compensation. The case did not end there though; it has escalated to the Court of Appeal (the second highest court in the land). The Court of Appeal's website shows the case is scheduled to be heard on 7 July 2009. According to 11KBW set of chambers, the hearing is limited to the issue of compensation only. This suggests that the wrong of race discrimination committed by Abbey National and Mr Hopkins appears to have been finalised by the Employment Appeal Tribunal (EAT), which upheld the original Employment Tribunal's judgement that Abbey National and Mr Hopkins had discriminated against Mr Chagger on the grounds of race in his dismissal.

UK Financial Services is a highly regulated commercial sector. Financial institutions face a significant volume of standards and expectations to be complied with regarding their various stakeholders, such as customers and the wider public, investors, employees, suppliers, competitors, regulators, and so on.

Complying with the standards is part and parcel of conducting business in the financial sector; financial institutions need to devote sufficient resources to compliance. Compliance failures can lead to high profile consequences, if either picked up by the appropriate regulators during inspections or reported by the aggravated parties to the legal or regulatory jurisdictions, as demonstrated by the Chagger case. The court records highlight a multitude of compliance failures committed by Abbey National and Mr Hopkins, some of which are outlined below.

Abbey National had failed to comply with the first step required by the statutory dismissal procedure; namely, giving the employee a written statement of the circumstances leading it to contemplate dismissing him and asking him to a meeting. The Tribunal found that Abbey National had not given Mr Chagger such a written statement.

Abbey National had not complied with the steps recommended by the statutory Code of Practice on Racial Policy in Employment regarding Equal Opportunity training. The Tribunal found that Mr Chagger had tried to address his allegations of race discrimination directly with Abbey National and Mr Hopkins (through the company's own complaints and grievance procedures) but Abbey National had not provided Equal Opportunity training to any of the managers it allocated to hearing and deciding on Mr Chagger's issues. Abbey National had not complied with the steps recommended by the statutory Code of Practice on Racial Policy in Employment with regard to monitoring either. The Tribunal found a plethora of monitoring failures, including the failures to take allegations of race discrimination seriously and to investigate them promptly.

Abbey National had failed to comply with the Tribunal's order to reinstate Mr Chagger in order to remedy its wrongdoing. UK law regards reinstatement as the primary remedy for unfair dismissal; it enables the employee to continue to receive the economic benefits of the role in the future and also restores the mental satisfaction that the employee enjoyed from his role. Abbey National had refused to reinstate Mr Chagger and the Tribunal was dissatisfied with the Abbey National's reasons for refusing to comply with its order

Abbey National had failed to comply with the questionnaire procedure of the Race Relations Act (Questions and Replies) Order 1977. The Tribunal concluded Abbey National's answer to Mr Chagger's race discrimination questionnaire was evasive and that it had failed in answering the race discrimination questionnaire.

Abbey National and Mr Hopkins had failed to comply with the law on employment. The selection of a particular employee for dismissal in a redundancy situation must be fair under the general reasonableness test per section 98(4) of the Employment Rights Act 1996. Fair selection for redundancy dismissal calls for the fair application of selection criteria; they must be objective and measurable. However, the Tribunal found that the selection criteria used by Abbey National were either un-measurable or all but un-measurable and very subjective.

Mr Hopkins had failed to comply with how a reasonable manager would be expected to behave. The Tribunal criticised Mr Hopkins for the way in which he had applied the redundancy selection criteria to Mr Chagger. For example, the Tribunal found that Mr Hopkins had marked Mr Chagger down for being self-reliant and getting on with things, but other managers might well consider that an asset for an employee in Mr Chagger's highly responsible position, and score him up for.

Abbey National had failed to comply with common good practice in redundancy procedures; that of ensuring that more than one person carries out the scoring and assessing of employees for redundancy (as a safeguard control to enhance objectivity of the scoring and to minimise the risk of allegations of subjectivity and discrimination). However, the Tribunal found that Abbey National did not operate this control. Amongst other factors, Mr Hopkins single-handedly was able to volunteer to Abbey's management to lose one of the two employees he managed (Mr Chagger being one), to approach Mr Chagger with an offer to take up voluntary redundancy, to carry out the compulsory redundancy scoring exercise, and to lower Mr Chagger's scores to ensure he was the one that would be selected for dismissal.

Abbey National and Mr Hopkins failed to comply with the law on discrimination. They had both unlawfully discriminated against Mr Chagger on the grounds of race.

The Chagger v Abbey National case demonstrates the importance of compliance risk and its potential consequences on an organisation's reputation.