In the wake of the financial crisis in 2008, the financial services sector saw wave after wave of high profile whistleblowing scandals hit the headlines.

Changes afoot

These exposed the involvement of banks in such colourful activities as Libor manipulation, tax evasion, mortgage fraud and money laundering. These revelations were extraordinary, and even to those who had spent all of their careers in the sector, unimaginable.

In an attempt to avoid a repeat of 2008, the Parliamentary Commission on Banking Standards (PCBS) was established in 2012. The report they produced the following year, “Changing Banking for Good”, identified that whistleblowing complaints were rare and there were inadequate levels of protection for whistleblowers.

The PCBS went on to make wide ranging recommendations to promote better handling of whistleblowing complaints in banks and encourage people to raise their concerns. These recommendations are the source of the whistleblowing rules coming into force today.

Whilst the new rules are currently only mandatory for banks, if you work in any regulated business, these rules will apply to you by 2018. The regulators are also encouraging every regulated businesses to voluntarily comply with the rules now.

From today, banks must:

  • Provide a confidential whistleblowing hotline which is accessible not just for employees, but any member of the public who wishes to blow the whistle on their activities;
  • Tell their staff about the whistleblowing services already provided by the financial regulators (the FCA and PRA), and how to access them;
  • Present an annual Board report on whistleblowing;
  • Inform the financial regulators if it loses a whistleblowing case in an employment tribunal; and
  • Ensure that its staff are appropriately trained on whistleblower protection.

Whistleblower's champion

In addition to the above, each bank must appoint a senior manager (known as a “whistleblowers’ champion”) who takes ultimate responsibility for ensuring that whistleblowing systems and processes are robust and fit for purpose. The whistleblowers’ champion role is hugely important because the regulators consider the ability of the bank to handle whistleblowing complaints properly directly impacts on their fitness and propriety to carry out regulated work.

One particularly controversial aspect of the new whistleblowing rules is whether they create a duty for senior employees to blow the whistle on any concerns. The financial regulators say the rules do not, but it’s hard to square this with the explicit wording of the rules, which state that senior managers must report any concerns to the regulator that it would wish to be notified of. Senior employees in banks will understandably be concerned that they may find themselves subject to regulatory sanctions if they fail to notify the regulators of all potential issues. It’s possible that going forward, senior managers make many more disclosures to the regulators in order to protect their position. However, it’s easy to see that this could be a significant drain on the regulators resources, and could reduce their effectiveness.

So, have we seen the last whistleblowing scandal in the banking sector? No. In fact, I would expect we see more, not fewer, scandals, as the rules are likely to bring further malpractice to the attention of the regulators and public.

This article by Christopher Tutton was first published on Changeboard.com on 7 September 2016.