In February 2015 the FCA and the PRA published a joint consultation paper (FCA CP15/4 and PRA CP6/15) (CP) on whistleblowing in deposit-takers, PRA-designated investment firms and insurers (relevant firms). This article considers the key proposals in the CP, and potential action points for relevant firms to consider.

Background

1. Following the recommendations published in June 2013 by the Parliamentary Commission on Banking Standards (PCBS) that banks put in place whistleblowing mechanisms for their employees (and that the FCA and the PRA ensure the effectiveness of these measures) the FCA and the PRA (together the regulators) have issued the CP proposing formal whistleblowing procedures for relevant firms.
2. The aim of the CP’s proposals aim is “to move towards a more consistent approach, building on existing good practice in firms. They aim to ensure that all employees are encouraged to blow the whistle where they suspect misconduct, confident that their concerns will be considered and that there will be no personal repercussions”.
3. In its note “How we handle disclosures from whistleblowers” also published last month, the FCA notes that it is receiving an increasing number of whistleblowing disclosures.
4. The FCA highlights that it considers such reports to be an important source of information, and that it expects to see an increase in the proportion of whistleblowing reports that lead directly to enforcement action or other intervention, or which provide intelligence of significant value in the future.

Who will be affected by these proposals?

1. The CP proposes a set of rules that will apply to UK banks, building societies, credit unions (excluding small credit unions with less than £25 million in assets), PRA-designated investment firms and insurers. However, it is worth noting that the FCA intends to consult in future on whether to require similar whistleblowing mechanisms to be introduced by a wider range of firms it regulates.

The regulators also specifically address the application of these proposals to the following entities:

1. UK branches – while the proposals in the current CP do not apply to UK branches of overseas banks the regulators have specifically noted that they are considering whether the requirements should apply to such UK branches and may consult on this in the future;
2. group companies – these proposals only apply to the regulated legal entity; they do not apply to other entities within the group unless such entities are also relevant firms. Therefore, the proposals in the CP will not be required to be applied on a on a group-wide basis, although as the regulators point out relevant firms may choose to implement the new rules on a group wide basis for practical reasons.
3. appointed representatives – while the FCA considered requiring principal firms to include a contractual obligation in their agreement with their appointed representatives and tied agents to put whistleblowing arrangements in place; they have currently decided against this and they believe it would be impractical in many cases. However, relevant firms will be obliged to require their appointed representatives and tied agents to inform their UK-based employees who are workers about the FCA whistleblowing services.

Overall the regulators estimate that about 1,500 firms will be affected by these proposals.

Key Proposals

The regulators propose that relevant firms should:

1. have internal whistleblowing arrangements in place and inform their UK-based employees about these arrangements. While the actual arrangements are largely left to the discretion of the firms themselves, the regulators are proposing that the relevant firms should:
2. have a written whistleblowing procedures in place;
3. respect whistleblowers’ confidentiality (including having procedures in place to deal with reports from individuals who have not disclosed their identity);
4. assess and escalate whistleblowers’ reports appropriately, including where necessary informing the regulators and/or other law enforcement agencies;
5. track the outcome of the whistleblowing report and the whistleblower themselves (so that the firm can demonstrate whether or not the whistleblower has suffered any detriment as a result of their report);
6. take all reasonable steps to ensure no-one in the relevant firm’s control victimises whistleblowers
7. inform their UK-based employees that they can blow the whistle to the FCA or the PRA (employees of appointed representatives and tied agents should also be informed of their right to report to the FCA or the PRA);
8. offer protection to all whistleblowers, whatever their relationship with the firm and whatever the topic of their disclosure (this would include contractors, temporary workers and interns and therefore the categories of persons protected for making disclosures are considerably more extensive than those afforded protection under the Public Interest Disclosure Act 1998 (PIDA));
9. include a provision in new employment contracts and settlement agreements clarifying that nothing in that agreement prevents an employee, or ex-employee, from making a protected disclosure;
10. appoint a “whistleblowers’ champion” – this is a senior individual (a non-executive director who is a senior manager under the Senior Managers Regime and Senior Insurance Managers Regime[1]) who will be responsible for:
11. overseeing the effectiveness of the firm’s whistleblowing policy (including ensuring that a whistleblower does not suffer detrimental treatment);
12. preparing an annual report to the board regarding the operation of the policy (the contents of that report are left to the discretion of the firm); and
13. reporting to the FCA where, in a case before an employment tribunal contested by the firm, the tribunal finds in favour of a whistleblower.

Interestingly, while the regulators considered whether they should introduce a positive obligation on employees of relevant firms to report any concerns they may have (a duty to blow the whistle), the regulators decided against including such a rule.

However, approved persons will still of course be subject to the obligation to deal in an open and honest manner with their regulator.

Potential Action Points

1. In light of the CP, relevant firms would be advised to review their whistleblowing procedures, and to consider updating relevant staff handbooks. In particular, relevant firms need to ensure that they can demonstrate how employees are informed about the relevant firm’s whistleblowing policy, and how the relevant firm protects whistleblowers from detriment.
2. Obviously the implementation or amendment of a relevant firm’s whistleblowing policy will require training for employees and in particular the whistleblowers’ champion.  The extent of the training will be determined by the role of the employee, and whether the firm already has a whistleblowing policy in place which may deal with much of the proposals in the CP.
3. Given the FCA’s indication that it may extend the proposals to other classes of firms it regulates, firms other than relevant firms may wish to review their procedures in line with the proposals in the CP as a matter of best practice. In particular, it would be useful to ensure that a written whistleblowing policy is in place, that any new employment or settlement agreements contain the recommended language and that a sufficiently senior individual in the firm has overall responsibility for protecting whistleblowers.
4. In terms of sectors which are particularly subject to whistleblowing disclosures, current trends from the FCA’s whistleblowing cases would indicate that consumer credit is a significant area of concern as the FCA received 152 disclosures between April 2014 (when it assumed regulatory responsibility for the sector) and December 2014. However, the financial advice and intermediary sector is the one which generates the most whistleblowing reports to the FCA, accounting for 277 disclosures last year.  Asset management firms accounted for 41 reports to the regulator. The most common subjects of the disclosure were concerns regarding the culture of the organisation and fitness and propriety, indicating that these may be particular areas which firms may want to review.
5. Finally it is worth noting that should firms wish to provide feedback on the CP, the consultation period closes on 22 May 2015.
6. The FCA is planning to hold a whistleblowing forum in March 2015 to engage with external stakeholders and other prescribed persons under PIDA, and to share best practice.