In October, the FCA published its new rules on Whistleblowing. The new rules are part of a wider suit of new rules aimed at enhancing individual accountability in the wake of the banking industry scandals that have cost the Banks billions in fines over the past few years.
The publication of the new rules follows the publication of the FCA's final rules on improving individual accountability in the UK banking sector in July 2015, which includes the Senior Managers and Certification Regime, new Conduct Rules and new rules on remuneration (bonuses).
The aim of the Whistleblowing rules is to encourage a culture in which individuals working in the industry are comfortable raising concerns and challenging poor practices and behaviours. As with the Senior Managers Regime, there will be a direct line of responsibility and accountability for the introduction, management and maintenance of the rules within a firm right up to board level.
Protection for whistleblowers is already provided as a matter of law pursuant to the Public Interest Disclosures Act 1998 ("PIDA") and firms will already have policies in place that seek to actively encourage whistleblowing. The new rules bring the issue of whistleblowing into the regulatory arena, applying a number of enhancements over and above the strict legal requirements.
The new rules will require firms to:
- Appoint a Senior Manager as their whistleblowers' champion;
- Put in place whistleblowing arrangements capable of handling all types of disclosures (not just of regulatory breaches) from all types of persons (not just from employees);
- Insert wording in settlement agreements explaining that workers have a legal right to blow the whistle;
- Tell UK based employees about the FCA (and PRA) whistleblowing services;
- Report on whistleblowing to the board at least annually;
- Inform the FCA if it loses a whistleblowing case in an employment tribunal; and
- Require its appointed representatives and tied agents to tell their UK based employees about the FCA whistleblowing service.
In a Policy Statement published in October 2015, the FCA responded to comments raised by market participants to its consultation on the new rules. Some of the more noteworthy changes/clarifications are as follows:
- The whistleblowing champion will need to be a non-executive director who is subject to the Senior Managers Regime (or the Senior Insurance Managers Regime);
- There will be no regulatory duty on an employee to blow the whistle; and
- Annual whistleblowing reports are to be made available to the FCA on request but there is no requirement to make them public.
The new rules will initially apply to deposit takers with over £250m in assets (and to insurers subject to the Solvency II directive) and will serve as non-binding guidance for all other regulated firms.
The new rules will come into force on 7 September 2016, save that the requirement to assign responsibilities to a whistleblowing champion who will be responsible for overseeing the steps the firm takes to prepare for the new regime, is to take effect on 7 March 2016.
The FCA has indicated that it will consult shortly on the application of the Whistleblowing rules to UK branches of overseas banks. Further, once the rules have been in place long enough so that the FCA can assess their effectiveness, it will consider whether the rules should be applied to other regulated firms such as stockbrokers, mortgage brokers, insurance brokers, investment firms and consumer credit firms.
The new rules come about following a lengthy period of consultation so they come as no surprise and most firms will have been preparing for their introduction already. Further, whistleblowing and the legal regime under PIDA is nothing new and as stated above, firms to whom the FCA's new rules apply will have long standing whistleblowing policies in place. Consequently, the FCA's rules will require adjustments and enhancements to existing policies. The significance of the new rules should not, however, be understated. They are aimed at making firms, and, specifically, individuals within those firms, accountable for ensuring that the culture of whistleblowing becomes embedded in the culture of the firm. In future financial wrongdoing, it will undoubtedly be the case that the FCA will scrutinise whistleblowing policies of firms for their effectiveness and annual reports may be the subject of some scrutiny (although noting the underlying duty of firms to disclose regulatory breaches in any event). Firms will certainly be required to do more than simply pay lip service to the rules.