Yesterday evening, the SEC announced the largest ever whistleblower award of more than $30 million, to an anonymous tipster. So, what does this mean for UK companies and will the FCA's approach achieve its long-term goals?
Shane Gleghorn, Head of Disputes and Investigations at international law firm Taylor Wessing says:
"This is a very interesting development on two levels. First, financial institutions in the UK that carry any exposure to the US market, will have to consider whether their compliance program is consistent with US standards. If not, they face the risk of their employees by-passing the UK regulators and going straight to the SEC, in order to receive a financial reward.
Second, this demonstrates the stark difference between the approach taken by regulators in the US and the UK to whistleblowing activity. Back in July, the FCA concluded that the risks associated with providing financial incentives to whistleblowers outweigh any encouragement they give to reporting misconduct. On the other hand, this landmark award shows the commitment by the US regulator to incentivize witness cooperation, with the view that this will encourage whistleblowers to come forward.
With the FCA only clarifying its position in July, it remains to be seen which system will prove most fruitful and whether the UK regulator can achieve its long-term goal of cultural change without incentives. Whistleblowing will continue to be a hot topic, and one that the City needs to monitor carefully over the coming years."
Whistleblowing developments: the widening gap between approaches adopted by the US (SEC) and UK (FCA)
July 2014 - the FCA published its conclusions following further research into financial incentives for whistleblowers. They concluded that providing financial incentives to whistleblowers will not encourage whistleblowing or significantly increase integrity and transparency in financial markets. They found no empirical evidence to suggest that the US system raises the quality or number of whistleblowing disclosures. They conclude that what whistleblowers want is improved protection and so will not introduce financial incentives but will proceed with regulatory changes required to ensure firms have effective internal whistleblowing mechanism and to make senior management accountable for delivering these.
September 2014 – remarks have been made by the U.S Attorney General stating that they should think about modifying whistleblower provisions under certain legislation to increase incentives from $1.6 million (a "paltry sum") and how cooperating witnesses have been crucial in securing convictions. The SEC also produced its Strategic Plan for 2014-2018 which also states that it will build upon the establishment of the Office of the Whistleblower and continue to encourage whistleblowing, noting that under the Dodd-Frank Act, the SEC is required to compensate eligible whistleblowers with an award of 10-30% of amounts collected. This contrasts with the view of the FCA published in July that they did not think that the case has been made for introducing financial incentives for whistleblowers who report to them (http://www.fca.org.uk/static/documents/financial-incentives-for-whistleblowers.pdf).
22.09.14 – The SEC announced the largest ever whistleblower award of more than $30 million, to an anonymous tipster.