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Whistleblowing Policy – Why Risk Managers Should Tread Carefully

Posted by Serina Gill on 31-Jul-2017 13:26:25 in Risk Manager, FCA, whistleblowing

shutterstock_494867533-847327-edited.jpgNo matter how senior someone is, they should respect the right of anyone in their organisation to act as a whistleblower. If not, then the repercussions can be serious.

Take the case of Jes Staley, the chief executive of Barclays Bank, who is under investigation by the FCA after he tried to find out the identity of a whistleblower. He is said to have used the bank’s internal security team twice to try and see who had sent anonymous letters to the board, which made allegations about a long-term associate that Staley had employed at the bank.

However, Staley’s actions were censured and he has since received a reprimand from the board, a reduction to his bonus and the regulatory probe continues.

FCA & PRA Rules

Without whistleblowers, the work of regulators would be much harder, since they have a key role in exposing wrongdoing. As such, in 2016, new rules came into force from the FCA and the PRA to ensure firms could allow employees to feel more confident about raising concerns. Both regulators have a whistleblowing function and their rules requires firms to: 

  • Appoint a senior manager as a whistleblowers’ champion
  • Have internal arraignments to handle all type of disclosure
  • Explain that workers have a legal right to blow the whistle
  • Tell UK-based employees about the regulators’ whistleblowing services
  • Present a report to the board on whistleblowing annually
  • Inform the FCA if the firm loses an employment tribunal with a whistleblower
  • Require appointed representatives and tied agents to tell UK-based employees about the FCA whistleblowing service

Meanwhile, it was announced in May that UK branches of foreign banks must also now adhere to the whistleblowing rules, and allow their employees to report concerns to either the FCA or the PRA.

Whistleblowing - A Potential Risk Signal 

However, whistleblowers are not always beyond reproach. They can be courageous individuals acting in the public good, or on occasion, be vexatiously seeking revenge.

On either count, the information that results from whistleblowing cases can be extremely enlightening from a risk perspective, showing not only where there may be malpractice but also management attitudes.

It may appear that focus on having the right workplace environment and the new rules are already having some impact, since the most recent figures from the FCA show that the number of whistleblowing cases it received dropped last year to 900, which compares to 1,014 in 2015/16 and 1,340 in 2014/15. 

Or is the drop more likely indicative that not all whistleblowers come forward because they are too worried? Some may well fear reprisals or losing their job – and that rather than receiving protection, it is the messenger who will be shot.

Across the Atlantic

whistle_blowing-743583-edited.jpgIn 2011 in the US, regulator the Securities and Exchange Commission opened its Office of the Whistleblower. This is focused on encouraging people to come forward and there is a clear financial incentive of up to 30% of any penalties imposed on firms.

It is said this is proving an effective mechanism with a 10-fold rise in tip-offs and some $154 million paid in rewards to 44 individuals, with some $1 billion secured in related fines. 

But, the UK has opted not to take this approach, even though the FCA is said to have studied the American model. In 2014, the FCA claimed a similar strategy here would be too difficult and expensive to set up in addition to creating a ‘moral hazard’.

There may be no financial incentive inthe UK, but the regulatory pressure is increasing and with growing momentum to avoid further financial scandals, this is an important topic. Risk managers must stay mindful that if someone wants to blow the whistle, they have the right to do so and their employer also needs to be compliant.

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