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Whistleblowing in the Financial Services
Whistleblowing Regulatory Requirements:
14th October 2015
Earlier this month the FCA introduced New Rules on Whistleblowing for deposit-takers, PRA-designated investment firms and insurers.
These new rules require affected firms to put in place whistleblowing procedures to allow their employees to raise concerns internally and an obligation to appoint a senior person to take responsibility for the effectiveness of these arrangements, alongside the requirements of the Senior Managers Regime.
Affected firms will have until 7th September next year to comply with the new whistleblowing rules and before this deadline must have assigned responsibilities to a ‘Whistleblower’s Champion’ within their organisation that will take effect earlier - on the 7th March 2016 - at the same time as the Senior Manager’s Regime.
Whilst these new rules affect only those types of firms specified, whistleblowing affects all regulated firms.
As the Financial Conduct Authority informs us, whistleblowers provide them with “invaluable information about wrongdoing in the regulated sector.” In addition, information provided by whistleblowers has helped contribute to “firms and individuals being fined, permissions being varied or withdrawn, warning letters being issued and a variety of other early interventions, such as asking a firm for clarification about their activities.”
But what exactly is whistleblowing and what does it achieve?
Whistleblowing or ‘blowing the whistle’ means an individual has raised concerns, either within the workplace or externally, about a possible risk, danger, wrongdoing or malpractice which might affect others.
Anyone within a firm or organisation, or that used to work within a firm or organisation could be a whistleblower no matter their role or seniority within the business. This is also commonly referred to as ‘speaking out’ or ‘raising a concern’. Invariably the term ‘whistleblowing’ is associated to situations where the person speaking up is worried about how their firm might respond to their concerns.
In addition, where people have raised their concerns internally within a firm and they feel that these have not been properly addressed or that the company is still not doing the right thing, then they may have ‘blown the whistle’ to an external party, such as the regulator.
It is commonly believed that aspects of the financial crisis could have been less severe if certain practices within banks and other financial services firms had been identified earlier and been subjected to greater scrutiny. Often whistleblowing can act as an early warning system for misconduct or potential operational problems. Thus firms in the financial sector are having more pressure placed upon them by the regulators, the Government and the general public to pay greater attention to whistleblowing in an effort to avoid repeating events that lead to the financial crisis.
Invariably ‘whistleblowing’ has the connotation that the person doing so is disloyal, however this is often one of the biggest misconceptions with whistleblowing, with many instances proving quite the opposite. Often the most public-spirited and loyal of employees are those that are first to raise their concerns with management in an effort to assist their firm in addressing any potential problems before they become too big.
It is misconceptions like this that often pose a barrier to individuals speaking up despite feeling their concerns are valid. It has been made clear by the regulator that whistleblowers are vital in uncovering wrongdoing and they promote firms into self-policing and improving their culture from within. As such, firms should be looking to do all they can to support and encourage individuals to come forward and raise their concerns.
According to a report by Pinsent Masons published in March this year, the regulator has seen an increase in the number of whistleblowing cases being opened. Last year (2014), with a total of 1,367 opened cases, there was an increase of 44% in the number of whistleblowing cases opened in comparison to the year before (2013). And in comparison to the year before that (2012) - during the last year of supervision by the FSA - there has been an increase of 142%.
Michael Ruck, formerly with the Financial Conduct Authority and now a senior financial services enforcement lawyer at Pinsent Masons says:
"There is no doubt that staff at authorised firms have become more aware of their compliance obligations. The FCA's focus on personal accountability is changing people's behaviour and creating a culture where people will 'cover their backs'. In the past people often turned a blind eye to wrongdoing for fear of rocking the boat but this is increasingly no longer the case.”
The FCA has their own dedicated Whistleblowing section that encourages regulated firms “to set up appropriate procedures to encourage workers to blow the whistle about wrongdoing which relates to regulated activity, within their firm.”
In addition, they advise that whilst whistleblowers are encouraged to use their firm’s own whistleblowing procedures, if an individual does not believe these to be adequate or they remain concerned by a lack or the nature of their firm’s response then the Regulator should be contacted.
As we have discussed, now more than ever, firms should ensure that that they have an appropriate whistleblowing policy or whistleblowing procedure in place to help identify internal issues and remedy them before they manifest into significant legal and/or regulatory failings.
Whilst at present having a whistleblowing policy has not yet been specified by the regulator as mandatory for all regulated firms (though watch this space!), not having one could negatively impact a firm’s effectiveness to adhere to the regulator’s Principles for Business that all regulated firms are required to.
And, on an individual level, those within regulated firms that are Approved Persons have an explicit duty to deal with the regulator in an ‘open and co-operative way’ and to ‘disclose appropriately any information of which the regulators would reasonably expect notice’ thus, concerns over malpractice or potential wrong-doings would need to be addressed.
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If you would like help in designing and implementing an effective whistleblowing policy or procedures for your business or you would like assistance in reviewing and assessing the effectiveness of your existing whistleblowing procedures, please get in touch with our Regulatory Support team.