Nicola Sturgeon signed off on 'unregulated' state bank appointment of 'conflict of interest' scandal exec

There is criticism over the 'unregulated' appointment of Willie Watt, which it has emerged was signed off by Nicola Sturgeon, two years after she agreed to a plan which would set in stone "the need for substantial transparency, regularity and probity" in the way that the bank operated.

Former finance minister Derek Mackay gave the nod to Willie Watt to head the SNIB, without ethics watchdog oversight through an "accelerated timescale" at the end of 2019 so that it could be operational in 2020.

A Scottish Enterprise board meeting in November was told it was supposed to open "as scheduled" in July.

READ MORE: £8.6m in penalties for Martin Currie

As of this week there is still no date for when it will be up and running - but the Scottish Government insist it will be this year.

In May, Mr Watt said: "We still believe we can launch in 2020 as planned and are working hard to make sure that we do."

Mr Watt was appointed despite the firm he previously led being fined £8.6million in the UK and America over a conflict of interests scandal.

Papers relating to his appointment seen by the Herald reveal that the appointment was signed off by the First Minister five months before a law was brought in ensuring that all future key roles at the bank would remain regulated.

Legislation to create the bank, which would invest in projects linked to the Government’s economic strategy, were first introduced to Parliament as long ago as February, 2019.

The announcement of the four-year appointment of Mr Watt was made nine months later, by Mr Mackay (below), but only after Nicola Sturgeon's approval.

The board chairman earns an annual salary of up to £60,000 per year for up to 48 days a year of work.

As part of the unregulated process, Mr Watt was asked if he was aware of any matter relating to his past or present conduct "which could possibly embarrass the Scottish Government, ministers or the Scottish National Investment Bank if appointed". It has been confirmed the 'conflict of interest' case was declared at Mr Watt's interview.

He and other candidates were asked as part of a 'fit and proper person test' that they were "not aware of having committed any offence or performed any act incompatible with the position".

They were also asked if they read and understood the Principles of Public Life - public service, selflessness, integrity, objectivity, accountability and stewardship, openness, honesty, leadership and respect.

Scottish Labour MSP Neil Findlay said that the First Minister should not have signed off on the unregulated process.

"This shows that Nicola Sturgeon's warm words about transparency were worthless.

"Now we find out that while she was promising openness and transparency around the appointment, she signed off on what was a recruitment process that was designed to avoid scrutiny and transparency.

"This is not a good way for such a critical organisation to begin life."

The Scottish government committed to a publicly owned national investment bank in 2019 with the First Minister saying the “truly transformative” measure would be operational by 2020.

Nicola Sturgeon appointed former Tesco Bank chief executive Benny Higgins as the strategic adviser for the establishment of the Scottish National Investment Bank two years ago in a role that was to end early this year once it was up and running.

Mr Higgins' decade in charge of Tesco Bank was also not without controversy.

The bank chief executive came under fire in 2016 as chief executive of Tesco Bank when it was revealed he spent £18,000 in taxis in just eight months while it was laying off frontline staff.

The same year Tesco Bank was hit by a cyberattack in which £2.5 million was stolen from about 9,000 customer accounts.

Mr Higgins denied that any of those issues were related to his departure three years ago.

Mrs Sturgeon had already accepted several key recommendations from the developer of the plans to establish the bank as a public body, including that it should be "ethical" and should meet "the highest standards of transparency and accountability."

The implementation plan states: "The expected high public profile of the bank, its role and position within wider Scottish society, its anticipated impact on the economy and its mission-orientated mandate all increase the need for substantial transparency, regularity and probity in the way that the bank operates. It should expect to make much information routinely public, in recognition of the wider public interest in its activities whilst also protecting commercial confidentiality.

"This should include, for example, information being made public about investment decisions, investment performance, organisational costs, staffing structures and remuneration levels."

Mr Watt was chief executive at Martin Currie in 2012 when it was fined £8.6million by US and UK regulators in a 'conflict of interest' case - knocking 84 per cent off annual pre-tax profits.

The £3.5m sanction imposed by the UK Financial Services Authority (FSA) was the largest largest fine it had ever imposed at the time. Without a settlement discount, the fine would have been £5m.

The fine, for a case involving improper preferential client treatment, forced the firm to sell its successful China business to the managers at the centre of the episode.

The Financial Services Authority (FSA) fined the firm £3.5million, the largest amount it had ever imposed in a conflict of interest case.

A further £5.1million was imposed by the Securities and Exchanges Commission (SEC) in the US which described the incident as “fraudulent”.

The firm was accused of fraudulently disadvantaging one of its American clients by using funds in away that helped to prevent losses at another of its clients, a private hedge.

After taking the SNIB appointment Mr Watt said that learning from the scandal "made me a better manager and leader, and underscored my commitment always to do the right things for clients".

Scottish Labour deputy leader and finance spokesperson Jackie Baillie added: “It is of paramount importance that the Scottish National Investment Bank is held to the highest ethical standards and that all appointments are approached in a fair and transparent way.

“The appointment of Mr Watt was truncated by the Scottish Government in order to get the Scottish National Investment Bank operational as quickly as possible, but months later, there are no signs of life.

“It’s time to get the Scottish National Investment Bank up and running to facilitate Scotland’s economic recovery.” The Scottish Government defended the move to sidestep normal recruitment procedures saying: "The role of chair is key to the recruitment of the chief executive and directors and the appointment of the non-executive directors. For the Scottish National Investment Bank to be operational in 2020 meant that the Scottish Government had to proceed on an accelerated timescale with the view to appointing a chair during the autumn of 2019.

"This would enable the chair to contribute effectively on appointments to those other non executive director roles, the recruitment process for the chief executive and directors, and on the final set-up of the bank.

"Willie Watt’s appointment as chair of the Scottish National Investment Bank followed the process for public appointments in those circumstances where a public body has not yet been created.

"When we began this process, legislation setting up the bank was not yet in law and the appointment would therefore be ‘unregulated’.

"This route was agreed with the Scottish Parliament who raised no concerns regarding the Scottish Government’s rationale for proceeding with an ‘unregulated’ process.

"The Scottish Government also engaged with the Ethical Standards Commissioner about the potential for her office to ‘take oversight’ of this appointment process. However, the commissioner declined due to legislative restrictions limiting their involvement in ‘unregulated’ appointments.

"The required fit and proper person test was also completed satisfactorily."

The Scottish Government says the case for establishing the bank is strengthened by the "unprecedented challenges" brought on by the coronavirus outbreak.

"As a mission-oriented investor, the bank will be in a unique position to respond to significant challenges facing Scotland, and can influence the direction of economic recovery while ensuring social and economic returns."

Willie Watt, chairman of the Scottish National Investment Bank, said: “The issue in question related to an isolated conflict of interest situation at Martin Currie. As soon as we became aware of the issue we reported it to the regulator, fully compensated the client for any loss and restructured our compliance and governance functions to ensure that nothing similar could happen again. The FSA had no further recommendations once they’d reviewed the action we’d already taken. This was declared to the Scottish Government during the recruitment process.

"We are currently working hard to get the bank ready for launch this year against the challenging backdrop of the Covid-19 pandemic.”

A Scottish Government spokesman added: “The SNIB will open this year, and will be uniquely positioned to influence and shape the direction of Scotland’s economic recovery delivering patient, long-term investment to businesses, projects and communities across Scotland.

“The Scottish Government ensured we followed a rigorous process on appointments. The Code of Practice for Ministerial and Public Appointments was used in the appointment of the SNIB chair. That included carrying out all Fit and Proper Person tests mandated by the commissioner.

“This approach was agreed with the Scottish Parliament who raised no concerns regarding the Scottish Government’s rationale for proceeding with an unregulated process in appointing the Chair of the Bank. The Government engaged with the Ethical Standards Commissioner about a non-statutory role but this was not possible."