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A Step in the Right Direction for UK Whistleblowers: Financial Services Regulator Requires Whistleblowing Arrangements Be Beefed Up

Posted  October 9, 2015

By Richard Pike

As we announced earlier this week, the UK’s Financial Conduct Authority (FCA) has imposed new rules to promote whistleblowing. This post discusses the new requirements and identifies some shortcomings.

Readers outside the UK will need some background to put the new rules in context. The existing whistleblower regime in the UK does not go down the US route of providing financial rewards for whistleblowers but only, instead, seeks to protect whistleblowers against victimisation. In particular, if a whistleblower is fired or quits because of victimisation then he or she is entitled to pursue compensation before an Employment Tribunal. The protection applies across all industry sectors and to all types of suspected legal violation but is only engaged if the whistleblower behaves responsibly. This normally requires the whistleblower to make his or her report internally or to a prescribed external person, including industry regulators. There is no obligation on employers to put in place any particular whistleblowing arrangements.

The FCA’s new rules build on the existing regime but go one step further for the financial services firms affected, requiring them to put in place “appropriate and effective” internal arrangements for whistleblowing. The arrangements must allow for anonymous disclosures and must ensure effective assessment and, where necessary, escalation (including to the FCA, where appropriate). Firms are required to provide training for staff and to give them particular information about whistleblowing, including that they can always go directly to the regulator rather than have to report internally first. Implementation of the arrangements is to be supervised by a nominated non-executive director who will become the “whistleblowing champion”. He or she must ensure that a report on whistleblowing is presented to the board each year and that if the firm loses any whistleblower cases in the employment tribunal that this is reported to the FCA.
There is very little to criticise about the FCA’s new rules, as far as they go. Anything that encourages employees to raise concerns is a step forward and the new arrangements should do that. It is also encouraging to see that the new arrangements apply to a broader range of possible disclosures than the existing arrangements. So-called “reportable concerns” under the rules include not only legal violations but also a breach of the firm’s policies and procedures and “behaviour that harms or is likely to harm the reputation or financial well-being of the firm”.

There are, though, shortcomings. The new rules do not apply to UK deposit-takers with less than £250m of assets and, for the moment at least, do not apply to UK branches of foreign banks (this is to be the subject of further consultation). Moreover, firms that are within scope are not required to impose on their suppliers requirements to implement the same arrangements. This is particularly significant in circumstances where many UK banks outsource functions to third-party suppliers whose staff are based in developing countries where standards may be lower and where there may not even be employment law protections for whistleblowers. We have first-hand knowledge of issues arising in overseas service centres but not being reported either outside the service-provider or at all. It is interesting that drafters of the UK Bribery Act saw no difficulty in imposing requirements on UK businesses to police those performing services on their behalf yet the FCA sees this as a step too far in the whistleblowing context.

There is also a bit of an issue with the extended definition of “reportable concerns” falling within the FCA regime. Whilst the FCA could sanction victimisation of any whistleblower, the new FCA rules do not directly extend the employment law protections so a whistleblower could yet fail to get compensation because theirs was the “wrong type” of disclosure.

Finally, as always, there is the question of whether there are enough incentives for whistleblowers to come forward. It’s not easy being a whistleblower. Protection of employment is obviously important but might financial incentives be even more effective, particularly in an industry where much behaviour is driven by such incentives?

Tagged in: Financial Institution Fraud, International Whistleblowers,