Whistleblowing remains high on the regulatory agenda. What can firms expect in 2015?
Whistleblowing remains a hot topic. Last year saw a raft of amendments to the UK whistleblowing regime which took effect from June 2013. However, the area remains in flux, with further reviews ongoing by Government, Regulators and the whistleblowing charity Public Concern at Work. Meanwhile, disclosures made in the financial services sector have continued to rise, with disclosures to the FCA having trebled since 2011, with a total of 1,200 claims expected in 2014.
One of the issues under review has been whether the UK should offer financial incentives to whistleblowers. This was a controversial proposal, explored in light of the introduction of a similar regime in the US. For now, this appears to have been ruled out. When the Department for Business, Innovation and Skills (BIS) responded to its Call for Evidence in June 2014, one key conclusion was that there would be no introduction of financial incentives. However, BIS did leave the door open for this to be reconsidered in relation to specific organisations or cases. It also highlighted that statements on the issue were awaited from the PRA and FCA.
If the BIS response left any uncertainty, the joint PRA/FCA publication of July 2014 makes it clear that they do not support the introduction of financial incentives in the financial services sector. This is based on their research, which identifies a number of flaws in such a system. Concerns include: the harm that large pay-outs would do to public perceptions of the sector; the risk of malicious reporting and/or entrapment; and also the risk that rewarding whistleblowers for performing what, for many individuals, is a regulatory duty, could undermine the function of the regulators altogether. Further, the experience in the US suggests that incentivising whistleblowers has not resulted in a significant increase in the number of reports, or in the quality of the reports made, anyway. The PRA and FCA therefore conclude that incentivising whistleblowers is not effective as a measure.
Financial incentives may be off the table, but whistleblowing remains high on the regulatory agenda. First, both the FCA and PRA have confirmed that they will start publishing annual reports on the disclosures they receive and the actions taken in relation to them. They committed to starting this process before the end of 2014. This is in line with the Government’s own proposed amendments to the whistleblowing regime. The Small Business Enterprise and Employment Bill introduces a power for the Secretary of State to require “prescribed persons” (of which the FCA and PRA are two examples) to report annually on whistleblowing issues. The consultation on how this will work in practice closed at the end of September 2014. The reports are not intended to be detailed enough for firms to be identified; the proposal is for reports which show how many disclosures were received, the number of investigations that led to further action and other similar generic information. The reporting system has two goals: to ensure consistency across prescribed bodies; and to increase public confidence that the prescribed persons are taking the appropriate action.
The PRA and FCA have also accepted the Parliamentary Commission on Banking Standards’ recommendations on whistleblowing and senior management accountability. These include a recommendation that a named non-executive, usually the Chairman, should be responsible for overseeing whistleblowing procedures and should be accountable if a whistleblower suffers a detriment. The PRA and FCA have said they will publish further, more detailed, proposals on whistleblowing imminently.
Finally, as well as implementing changes at an institutional level, both regulators are improving the way that they handle disclosures made to them. In October 2014, the PRA published a new webpage which sets out details of its approach to whistleblowing, how individuals can blow the whistle and what will happen if they do. Further, the FCA has doubled the size of its whistleblowing unit and both organisations are improving the way they track disclosures and support whistleblowers.
In our view, these measures ensure collectively that whistleblowing remains in the public eye, particularly in a sector which is still under considerable pressure to improve its internal accountability and reduce risk. With further publicity likely when the PRA/FCA proposals are announced, we believe that firms may well have both new regulatory requirements and an increased volume of disclosures to deal with in 2015.