It would have been difficult for anyone in the City to have failed to notice the spate of whistleblowing incidents that followed the financial crash in 2008. From LIBOR and FOREX rate rigging, to the more recent “Swissleaks” scandal on alleged bank-supported tax evasion. These high profile incidents have led the City’s regulators, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), to take a more robust stance on strengthening protections in place for whistleblowers that expose malpractice.
Following the recommendations of the Parliamentary Commission on Banking Standards, the FCA has introduced new rules that require regulated entities to have effective whistleblowing arrangements in place. This includes providing routes for staff to raise concerns, a clear policy outlining how staff can report issues and how relevant regulated businesses (“firms”) will take this forward, and a process for reviewing how well the arrangements are working in practice. The rules are indicative of a top down approach to challenging negative attitudes towards whistleblowing within the financial services sector. In this article we provide a summary of the rules and highlight key areas that will require organisational change and further action by firms to ensure compliance.
Firms will have already appointed their Whistleblowers’ champion as of 7 March 2016. The champion will oversee implementation of the remaining requirements and monitor their ongoing effectiveness. Whilst the role is not required to handle disclosures directly, the champion should be identified in whistleblowing policies and procedures and thought should be given as to how any concerns raised with them directly will be addressed.
Who do the new rules apply to?
The rules will affect ‘relevant firms’, those being:
- UK deposit takers with assets of £250m or more;
- PRA-designated investment firms; and
- Insurance and reinsurance firms within the scope of Solvency II, the Society of Lloyd’s and managing agents
The FCA’s Policy Statement PS15/24 makes clear that whilst other regulated firms falling outside this definition are not obligated to comply with the rules, they will act as non-binding guidance. It would be wise for those institutions out of scope to consider how far they currently meet the new standards and whether they should take steps to move towards compliance in any event. The consultation response indicates that the FCA will review the effectiveness of the new requirements for those within scope at present, with a view to deciding whether the rules should apply to all firms it regulates. It is worth noting that of the 16 respondents who gave a view on whether the rules should extend to all regulated firms in the consultation, 14 felt that they should. It is possible to speculate that broader application could be on the horizon and early consideration would see firms better prepared for this.
The new requirements
Firms will be required to inform their UK employees of the FCA and PRA whistleblowing services.
Any whistleblowing policy or procedure should explain that a worker has the option of approaching the FCA/PRA directly and provide contact information for their whistleblowing teams. There is no requirement to have raised a concern internally before approaching the regulator and this should be made clear. Whilst it will be important for firms to ensure they comply with this requirement, it is recognised that the preferred position is for workers to report concerns internally to allow the firm to address them as soon as possible. Firms should ensure they actively promote their internal whistleblowing procedures. Guidance on circumstances where an individual may choose to approach the regulator could be included, for example where the concern is particularly serious, or has already been raised internally.
Whistleblowing arrangements will need to cover a broad range of disclosures that go beyond those covered by The Public Interest Disclosure Act (PIDA) 1998.
This requirement is indicative of the desire to promote organisational responsibility for encouraging a positive culture towards whistleblowing that extends beyond legal necessity. Firms will need to consider risks specific to them and the types of issues their staff would be expected to raise. A non-exhaustive list of examples should be included in any policy as a guide and will need to avoid simply replicating the categories of wrongdoing in PIDA. The arrangements should be made available to anyone who might be in a position to raise a concern (e.g. volunteers and self-employed consultants) and not just those who qualify for legal protection.
Settlement agreements must make clear that the worker will not be prevented from making a protected disclosure by virtue of signing an agreement. Workers must not be asked to give warranties in relation to whether they have made a disclosure or have information that could amount to a disclosure.
Whilst PIDA already renders any attempt to contractually silence a whistleblower unenforceable, this has not deterred some employers from including so called “gagging clauses” in settlement agreements. Many prudent firms though already recognise an individual’s right to pursue a whistleblowing disclosure in their settlement agreements. The FCA has produced sample wording that firms may adopt.
An annual report must be prepared for the firm’s board and be made available to the FCA/PRA on request.
The rules are silent on the content of the report but its preparation should be overseen by the Whistleblowers’ champion and care should be taken not to breach the confidentiality of any individual. Essential information will include the number of reported concerns, types of wrongdoing and investigation outcomes. The Whistleblowing Commission’s Code of Practice includes an audit and review checklist that may prove useful for firms when reviewing their arrangements and considering the content of the report.
Firms must inform the FCA of employment tribunal decisions where they are found to have victimised a whistleblower.
This requirement is further evidence of the regulator’s desire to gain insight into the culture of firms and how their arrangements are actually operating in practice. It remains to be seen how much perspective this requirement will provide as firms may decide to settle with workers in an effort to avoid the matter going to Employment Tribunal at all. The risk to firms in this regard, is that these referrals will serve as evidence of firms mistreating whistleblowers.
The (soon to be amended) Senior Management Arrangements, Systems and Controls sourcebook (SYSC) makes clear such evidence will be taken seriously and could call into question the fitness and propriety of the firm and individual approved persons.
It should be noted that Employment Tribunal referrals are only one example of evidence the FCA could consider in these circumstances and there would be nothing to prevent a worker from approaching the FCA directly to inform them of any poor treatment. Policies and procedures should stress a zero tolerance stance to victimisation of whistleblowers and provide suitable HR contacts that can be approached should a worker experience any mistreatment. This is also important for firms to be able to demonstrate they have taken reasonable steps to prevent and address victimisation to avoid liability in situations where an individual has been targeted by co-workers.
In addition to these specific changes, firms will need to ensure that all staff receive appropriate training on whistleblowing to ensure they are aware of the various channels and support available for raising concerns and that those with responsibility under the arrangements feel confident when handling investigations.
Another horizon issue is the possibility that the rules may be extended to UK branches of overseas banks. The FCA is due to consult on this and so firms with branches in the UK may need to consider making whistleblowing procedures available to their UK staff if they are not already in place.
How will these changes impact the sector?
The number of whistleblowing cases reported to the FCA dropped by 19% last year. It remains to be seen whether the new rules will continue this downward trend and if it is indicative of staff feeling more confident to raise concerns internally. This should be the focus of firms that aim to safeguard their reputation and provide assurance to their regulators, clients, the general public and other stakeholders, that their whistleblowing arrangements make a significant contribution to their compliance and risk management processes.
Alexandra Smith is a trainee solicitor at the leading UK whistleblowing charity Public Concern at Work (PCaW) and is currently on secondment to CM Murray LLP.
PCaW provide training and consultancy services on whistleblowing arrangements to organisations in the financial services sector. If you would like advice on how the new FCA whistleblowing rules may affect your business, and procedures you can implement to ensure compliance, you can contact email@example.com or contact firstname.lastname@example.org.