Financial incentives for whistleblowers will not increase the number of quality of disclosures regulators receive, the Financial Conduct Authority said today (30 July) as it rejected recommendations to follow the US model of paying when information leads to enforcement.
As part of its response to recommendations by the Parliamentary Committee on Banking Standards, the Financial Conduct Authority and the Prudential Regulation Authority had agreed to conduct further research into the impact of financial incentives on whistleblowing in the US.
In a note to the Treasury Select Committee, the FCA and the PRA said its research found that “providing financial incentives to whistleblowers will not encourage whistleblowing or significantly increase integrity and transparency in financial markets”.
The US regulatory model pays whistleblowers whose information leads directly to successful enforcement action such as the imposition of fines, from which the incentives are paid. However, for the vast majority of whistleblowers no payment is forthcoming.
According to the FCA, no more than a handful of whistleblowers have been paid since the Dodd–Frank Wall Street Reform and Consumer Protection Act came into force in July 2010.
The regulators added that most disclosures made to the FCA and PRA lead to supervisory rather than enforcement outcomes, and less than 1 per cent of whistleblowing cases lead to financial penalties being imposed.
The FCA found that there is “no empirical evidence to suggest that the US system raises either the number or the quality of whistleblowing disclosures within financial services”. The regulators also had concerns that incentives offered could undermine effective whistleblowing mechanisms.
However, the PRA and FCA said they welcome the committee’s recommendations for giving senior management responsibility and personal accountability “for ensuring that there are effective whistleblowing mechanisms in firms, and for safeguarding appropriate protection for whistleblowers”.
They added that these changes should create a culture where “speaking up” becomes “normal business practice”.
To improve the process for whistleblowers, from autumn 2014 the FCA and the PRA will also start to publish annual reports on the whistleblowing disclosures its receives and how they are handled.
According to the regulators, this will provide greater transparency on how, which in turn should increase whistleblowers’ confidence in coming to the regulators where they feel they cannot report internally.
In July 2013, the government published a consultation seeking feedback on whether the whistleblowing framework is operating effectively in today’s labour market.
The Department for Business, Innovation and Skills’ response to the consultation paper revealed that it does not believe that financial incentives should form an integral part of the whistleblowing framework.
The regulator said: “We therefore propose not to introduce financial incentives, but to press ahead with the regulatory changes necessary to require firms to have effective whistleblowing procedures, and to make senior management accountable for delivering these.”
