The FCA published its policy statement (PS15/24) on “Whistleblowing in deposit-takers, PRA-designated investment firms and insurers” on 6 October 2015. The FCA's new rules on whistleblowing apply to (amongst others) insurance and reinsurance firms within the scope of the Solvency II Directive (relevant firms). The PRA also issued Policy Statement PS24/15 and Supervisory Statement SS39/15.
In February 2015, the FCA consulted on a package of rules intended to formalise whistleblowing procedures in financial institutions.
This newsletter considers the policies and practices firms should have in place to determine the adequacy of their systems and controls and how firms should deal with a whistleblower.
Summary of the new rules
The FCA requires a relevant firm to:
- Put internal whistleblowing arrangements in place that can handle all types of disclosure from all types of person;
- Tell UK-based employees about the FCA and PRA whistleblowing services;
- Require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service;
- Inform the FCA if it loses an employment tribunal case with a whistleblower; and
- Present a report on whistleblowing to its board at least annually.
Who do the rules apply to?
These requirements apply to “relevant firms” which in this context means:
- UK deposit-takers with assets of £250m or greater, including banks, building societies and credit unions;
- PRA-designated investment firms; and
- Insurance and reinsurance firms within the scope of Solvency II and the Society of Lloyd's and managing agents.
For all other firms regulated by the FCA, these rules will act as non-binding guidance.
The FCA has not imposed these requirements on UK branches of overseas banks at this stage given that responses to the consultation highlighted the conflict with the home country’s laws and regulations this might involve. However, the FCA intends to consult further on this point. In addition, the FCA will consult on whether the rules should apply to other regulated firms such as stockbrokers, insurance brokers, consumer credit firms and investment firms.
When will the new rules come into effect?
The rules will come into effect from 7 September 2016 although the requirement to appoint a whistleblowers' champion (see below) will come into effect from 7 March 2016, the same date as the rest of the Senior Insurance Managers Regime. Between 7 March 2016 and 7 September 2016 the whistleblowers' champion will be responsible for overseeing the steps the firm takes to prepare for the new regime.
The obligation to inform employees about the FCA and PRA whistleblowing services
The FCA accepts that firms may encourage employees to use internal whistleblowing services but makes it clear that relevant firms are required to inform UK-based employees about the FCA and PRA whistleblowing services. Also a firm is not allowed to require an employee to escalate any concerns internally first. The FCA believes it is important that employees know they are entitled by law to approach regulators if they wish to do so. The rules do not require the relevant firm to promote the FCA and PRA whistleblowing services to non-employees.
Firms' whistleblowing arrangements should cover all types of disclosure and all types of people
The FCA does require relevant firms to make sure that their whistleblowing arrangements can handle any type of disclosure, although it is accepted that other polices such as grievance or harassment policies might be more appropriate escalation routes for certain complaints. Firms can redirect complaints through the appropriate escalation route. However, the FCA sees the whistleblowing arrangements as a neutral source of information to callers about alternative escalation routes available to them and so should ensure “effective assessment and escalation” of any concern.
The focus of the FCA’s new requirements is on making sure there are appropriate escalation routes for “reportable concerns” which include any concern about the activities of the firm including any subject-matter of a protected disclosure as currently defined in the legislation, any breach of rules, breach of policies or procedures or behaviour which harms or is likely to harm the reputation or financial well-being of the firm.
The FCA also requires relevant firms’ whistleblowing arrangements to be able to receive disclosures from any person, although a firm is not expected to promote its whistleblowing arrangements to anyone other than its UK-based employees. Firms must also allow anonymous disclosure should the whistleblower require this.
Training and development for UK-based employees
Managers must have training on how to deal with whistleblowing if something is escalated to them.
Explanation of workers’ legal rights in any new settlement agreements and a discretion to include text in employment contracts
A relevant firm will be required to include text in any new settlement agreements explaining workers’ legal rights in respect of whistleblowing and will be prohibited from asking an employee signing up to a settlement agreement to:
- Confirm they know of no information that could form the basis of a protected disclosure;
- State whether they have made a protected disclosure.
Sample text is provided by the FCA although firms are not required to use it.
Firms will have discretion as to whether they include such text in employment contracts or whether they request employment agencies to include such text in settlement agreements with workers. Standard form agreements should be reviewed to ensure that they reflect the updated rubric and that they do not include any statements on protected disclosures prohibited by the new rules. Standard form employment contracts should be reviewed in light of the new rules to see whether any amendments might be desirable.
The whistleblowers' champion
A whistleblowers' champion must be appointed by relevant firms and will be a non-executive director who is subject to the Senior Insurance Managers Regime. It is no longer required that the whistleblowers' champion be open to direct approaches from whistleblowers as the role is an oversight role. The whistleblowers' champion will be responsible for preparing an annual report for the board which may be made available on request to the FCA or PRA but not made public. The content and format of the annual report is not prescribed, giving firms the freedom to decide how much detail to include.
Financial groups will have the flexibility to allocate the prescribed responsibility to the whistleblowers' champion such that someone from elsewhere in the group may perform the champion role so long as they are a non-executive director. Someone based outside the UK could do this so long as they can perform the role effectively.
There will be no duty to speak up
The FCA will not place any duty on employees to blow the whistle.
Fitness and propriety
Finally, the FCA will regard as a serious matter any evidence that a firm has acted to the detriment of a whistleblower. This could call into question the fitness and propriety of the firm or any relevant member of its staff and could affect the firm’s continuing satisfaction of the threshold condition 5 (suitability) or, for an approved person or a certified employee, their status as such.
These proposals still leave some interesting questions for firms in drafting their whistleblowing policies and guidance for employees. In light of the requirement to inform employees about the FCA and PRA whistleblowing services and the fact that any disclosure from any person must be covered, there are some people who will whistleblow but who will not be protected under the current legislation from detriment or dismissal. Firms will need to decide how to inform employees fairly of their rights whilst putting these rules into place. Some amendment of standard settlement agreements, employment handbooks and employment contracts will be required together with a new emphasis on whistleblowing in training and development programmes.
It is evident that the FCA will be looking closely at how a firm deals with a whistleblower and whether it has appropriate policies in place to determine the adequacy of systems and controls. Whistleblowing policies and procedures should cover all types of disclosure from all types of person. Refreshing such policies may have a knock-on impact on employee handbooks. The focus of the new rules is to ensure that there are escalation routes for all types of reportable concerns.
UK-based workers should be informed of these policies and the firm should require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service. Additionally, procedures should be introduced to ensure that the FCA is informed if the firm loses a whistleblowing case in the employment tribunal.