March 10, 2016

The UK’s new whistleblowing regime going live: UK financial institutions required to appoint a “whistleblowers’ champion”

By Yulia Tosheva

On 7 March 2016, the new rule requiring UK deposit-takers (banks, building societies and credit unions), PRA-designated investment firms and insurers to appoint a senior manager as their whistleblowing champion came into force. The whistleblowers’ champion will be responsible for ensuring the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing. A firm’s whistleblowers’ champion must have “a level of authority and independence within the firm” and access to resources (including access to independent legal advice and training) sufficient to enable him to efficiently carry out his function.  FCA

The requirement to appoint a whistleblowers’ champion is part of a package of rules on whistleblowing published by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”) on 6 October 2015. Other key rules expected to enter into force in September 2016 require relevant firms to:

  • Put in place internal whistleblowing arrangements.
  • Include provisions in settlement agreements explaining that employees have a legal right to blow the whistle.
  • Notify UK-based employees about the FCA and PRA whistleblowing services.
  • Present a report on whistleblowing to the board at least annually.
  • Inform the FCA if it loses an employment tribunal with a whistleblower.

The rules follow recommendations by the UK Parliamentary Commission on Banking Standards (“PCBS”), which was set up in July 2012, in the wake of the LIBOR scandal, to consider and report on professional standards and culture of the UK banking sector.  Tracey McDermott, the then FCA chief executive, commented that the new whistleblowing rules “are designed to build on and formalise examples of good practice already found in parts of the financial services industry and aim to encourage a culture in which individuals working in the industry feel comfortable raising concerns and challenge poor practice and behaviour”.

The FCA has in recent years taken a number of steps to encourage whistleblowers to come forward, including conducting a detailed review of its whistleblowing procedures and increasing the resources dedicated to the area. The FCA has seen an increase in the number of reports it receives. For example, there were 1340 whistleblowing disclosures recorded for financial year 2014/15 against 1040 in 2013/14 (28% increase). However, according to sources, the FCA opened only 1104 whistleblowing cases in 2015, a drop of 19% compared to 2014.

In contrast with the approach adopted in the U.S., the new rules do not provide for monetary awards to whistleblowers whose reports lead to enforcement action. The U.S. government has stated that one of the aims of its whistleblower reward program is to attract reports of misconduct from foreign nationals.  The U.S. Securities and Exchange Commission (“SEC”) reports that since the beginning of its whistleblower program it has received over 1,000 whistleblower complaints from foreign nationals. British blew their whistles to the SEC 70 times in 2014 and 72 times in 2015, making the UK the SEC’s biggest source of foreign tipsters in the U.S.  It remains to be seen whether the new whistleblowing regime will encourage employees to report their concerns to the UK authorities.

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