Financial Conduct Authority  

Playing fair over whistleblowing

Playing fair over whistleblowing

In what may be seen as a game of two halves, the increase in whistleblowing reports to the FCA seen in 2013 and 2014 (948 and 1,367 reports respectively) has been followed by a decline in 2015 and 2016 (1,104 and 866 reports respectively).  

This decline is despite the introduction by the FCA and PRA of the senior managers regime (SMR) and rules on whistleblowing in 2016. These new rules followed criticism in 2013 from the parliamentary commission on banking standards (PCBS) regarding the FCA's handling of whistleblowing. The commission reported evidence from whistleblowers that "demonstrated a lack of confidence in the regulator's willingness and ability to support them and to act upon their concerns". 

The new rules required firms with more than £250m in assets, designated investment firms and those within Solvency II to appoint a senior manager as their whistleblowers’ champion. These rules also required such firms to put in place internal whistleblowing arrangements able to handle all types of disclosures from any person and to include in settlement agreements that workers have a legal right to blow the whistle.

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The same rules required firms to tell 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 they lose an employment tribunal with a whistleblower and require their appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.

The SMR, which came into force in March 2016 and forms part of the government's programme of banking reform following the financial crisis of 2008, was designed to make it easier for the regulators to hold senior individuals within banks and other designated financial institutions personally accountable for failings on their watch. It required firms to assign responsibility for certain areas of the business to named senior individuals.

The SMR forms part of the UK government's programme of banking reform following the financial crisis of 2008 and was developed following the recommendations of the independent PCBS in July 2013. The "senior managers" part of the new regime gives named senior individuals within firms the responsibility for certain areas of the business, while the "certification regime" requires firms to assess the fitness and propriety of staff in certain roles.

Both the UK's financial regulators, the PRA and the FCA, announced that they will apply relevant aspects of the SMR to their own senior members of staff, including the requirement to allocate core responsibilities to designated senior managers. 

The question of whether these regulatory changes have resulted in a shift in the culture of such firms regarding whistleblowing remains to be answered. Some financial institutions experienced an increased interest from employees about their responsibilities and ownership, with concerns escalated internally on a defensive basis. This reflected the impact of the SMR resulting in senior managers' decisions becoming in danger of being based on personal interest and liability, rather than applying a risk-based approach. 

It is unlikely that the whistleblowing figures for the past two years reflect a reduction in misconduct, as tip-offs received by regulators in other markets increased during the same period. For example, the number of whistleblowing cases raised by the securities and exchange commission (SEC) in the US, where whistleblowers receive financial incentives for reporting dishonest or illegal activities, has increased by 40 per cent since 2012 with a year-on-year increase every year.