Whistleblowing in Financial Services – Changes Proposed by the Regulators

Sheila Fahy

It will come as no surprise to regulated firms that changes are afoot with regard to whistleblowing. The critical need for robust whistleblowing arrangements that both encourage disclosures and protect those who speak out has been forcefully advocated by the likes of the Whistleblowing Commission, the Parliamentary Commission on Banking Standards, the PRA and the FCA. We now have a better idea of what this means in practice as the regulators have issued a joint consultation paper setting out their proposed vision on how to achieve these twin aims.

Management responsibility

Some of the proposals were expected. The responsibility for overseeing the effectiveness of a firm’s whistleblowing arrangements will be allocated to an individual who is both a non-executive director and a Senior Manager with the title of “Whistleblowers’ Champion” (likely to be the Chairman). Given the regulatory responsibilities and obligations that attach to the role of Senior Manager under the new Senior Managers Regime, this single step elevates whistleblowing to an issue that must be taken seriously in the boardroom. Particular attention will be paid to whether there is any retaliation against those who do speak out.

Wider category of reportable concerns

Less expected are the proposals that bring a wide range of non-regulated disclosures within the regulators’ domain. This is done by placing an obligation on affected firms to ensure adequate protections are afforded to anybody blowing the whistle irrespective of the subject matter. “Reportable concerns” under the proposed regime include disclosures that would not qualify under the Public Interest Disclosure Act (“PIDA”) or the regulatory framework, and cover any kind of misconduct, from breach of the firm’s policies and procedures to behaviour that harms the reputation or financial well-being of the firm. The regulators are also proposing that a wider category of people should be entitled to use the firm’s whistleblowing arrangements, eg secondees, interns and volunteers. This will not affect the current category of worker protected by PIDA but will simply enable these people to make reportable concerns to the firm or directly to the PRA/FCA.

Annual reporting

The increased scope of reportable concerns has knock-on consequences elsewhere in the proposals, an example of which is the rule that an annual report must be prepared by the Whistleblowers’ Champion for the firm’s governing body. The level of detail to be included is intended to paint a colourful picture of the firm’s culture when it comes to speaking out, and highlights that the whistleblower’s journey from disclosure to resolution is a subject in which the board must take an active interest.

Whistleblowing culture

Why have the regulators taken this approach? It is clear from the package of proposals that the regulators are making a firm’s culture their business. Mistreatment of a whistleblower would be a matter of regulatory concern regardless of whether the disclosure related to a breach of a specific FCA or PRA rule because it might be evidence of a culture that is harmful to those choosing to speak out. The regulators’ concern stems from the FCA’s analysis of their data from their whistleblowing cases in recent years. In 2014, the most consistently recorded issue is the negative culture within firms.

New link with fitness and propriety

The proposals make a link between detrimental treatment of a whistleblower and the fitness and propriety of the firm and/or a member of staff, but this is restricted to the narrower category of protected disclosures (regulatory rules or PIDA disclosures) rather than reportable concerns.

Freedom to speak out directly to the regulators

To force firms to get their house in order, the regulators have come up with a cunning plan that gives the whistleblower a choice as to whom the disclosure is made. It will be up to an individual to decide whether the safest way to make disclosures about malpractice is to use internal procedures in the workplace or whether he or she should go directly to the regulator. This option must be promoted to employees as part of a firm’s obligation to inform UK-based employees that they can blow the whistle to the FCA or the PRA regardless of whether they have made an internal report, and the methods for doing so. It is also something that should be covered in whistleblowing training to staff and managers.

Next steps

Nothing has been set in stone at this time as the proposals are subject to consultation. There are, therefore, no immediate steps to be taken other than to assess the implications for your organisation and to decide whether to make representations to the PRA or the FCA. Further details of these proposals are set out in the attached document, and the link to the consultation paper can be found here.

Comments published on Employment Talk do not necessarily reflect the views of Allen & Overy.

Read comments below or add a comment
  1. Sheila Fahy says:

    Thanks Sarah, I did see that enforcement action and was interested to see that the fine was reduced by 10% for approaching the FCA as it was deemed to be a mitigating factor – not quite along the lines of the US Dodd-Frank style incentives but nonetheless it’s one to watch to see if the practice becomes more common

  2. Sarah Hitchins says:

    Last year, the FCA and the PRA made it quite clear that they were not in favour of providing financial incentives to whistleblowers. However, in an enforcement case brought against an individual and published by the FCA yesterday (available here – http://www.fca.org.uk/static/documents/final-notices/anthony-rendell-boyd-wills.pdf) it appears that the FCA gave an individual an additional discount on his financial penalty in return for information he provided to the FCA which assisted with the FCA’s broader enquiries.

    Does this mean that the FCA may still be willing to offer some kind of financial benefit to individuals who are the subject of enforcement investigations and provide valuable information which assists the FCA with its broader enquiries?

    • Sarah Henchoz says:

      This is a really interesting turn of events and one our financial services clients will watch with interest as it effectively rewards a whistleblower through the backdoor. Does it then follow that an employer should also reward a whistleblower by increasing their bonus to reflect the fact that they have spoken up? This may well encourage others to speak up when we know there is a reluctance to do so, but does it also send the wrong message and/or run the risk of staff raising issues which are not in the public interest simply for personal gain?

Leave a comment

Your email address will not be published. Required fields are marked *