This year, the UK Financial Conduct Authority (FCA) has placed an increased emphasis on whistleblowing activity, both in relation to whistleblowing within authorised firms and the process of whistleblowing to the regulator.
In March 2014, the FCA’s annual business plan included “Enhancing whistleblowing activity” as one of its priorities for the year and stated, among other things, that the “FCA will carry out work to implement and supervise whistleblowing changes in firms”, following the recommendations made by the Parliamentary Commission on Banking Standards in June 2013. The business plan also reported that, in 2013, the FCA saw a 65% increase in actionable pieces of intelligence received from whistleblowers.
The July 2014 report by the FCA and the Prudential Regulation Authority (PRA, which supervises and regulates banks, building societies, credit unions, insurers and major investment firms)1 considered the merits of financial incentives for whistleblowing to the regulator.2 This report stated that, from Autumn 2014, both the FCA and PRA would start to publish annual reports on the whistleblowing disclosures they had received, and how these had been handled.
This increased emphasis on transparency of whistleblowing reports and whistleblowing activities should be of importance to authorised firms for two related reasons:
- The most obvious consequence is that transparency of the whistleblowing process to a regulator is likely to increase confidence among potential whistleblowers in approaching either regulator with any issues the whistleblower feels cannot be raised internally within a firm. Once a whistleblowing report is made externally, the issue is outside the hands of the firm, which has effectively “lost control” over how the matter is reported – including ensuring that all relevant facts are disclosed and determining whether any remedial actions can or should be put in place immediately.
- If a whistleblower decides to go to either regulator – rather than use a firm's internal whistleblowing procedures – this may have serious indirect consequences for a firm. The regulator concerned is likely to regard the firm as having insufficient internal reporting policies and procedures, which could lead to the firm being held to have committed regulatory breaches (and being sanctioned accordingly), or indeed more serious consequences.
These indirect consequences of having an insufficient internal whistleblowing policy are considered in more detail below, both specifically in relation to the UK Bribery Act, and the FCA Handbook more generally.
The Bribery Act and Whistleblowing Policies
As all firms will be aware, the Bribery Act 2010 introduced a corporate offence of failing to prevent bribery. The only defence that a firm may assert is to show that it had “adequate procedures” in place to deal with the risk of bribery and corruption. The Ministry of Justice guidance on what constitutes “adequate procedures” for the purposes of the Bribery Act sets out an indicative list of some topics that bribery prevention programmes may embrace, depending on their risks – this list includes the “reporting of bribery including ‘speak up’ or ‘whistle blowing’ procedures”.
There may not yet have been any corporate prosecutions by the Serious Fraud Office (SFO, the UK lead agency for investigating and prosecuting cases of domestic and overseas corruption) or other regulators for Bribery Act offences, but the SFO’s current investigations and recent prosecutions – together with the FCA's thematic reviews over recent years (including those relating to bribery, corruption and money laundering in asset management firms) – have shown that this is an issue high on UK regulators’ radars.
Given the information gateways that exist between the SFO and the FCA, any whistleblowing reports made to the FCA or any instances where the FCA discovers insufficient internal reporting procedures within firms as to bribery or corruption-related matters, may be shared with the SFO for the purposes of any investigation into Bribery Act offences.
The FCA Handbook
All individuals who are registered as approved persons with the FCA have a stand-alone obligation under Principle 4 of the FCA’s Statements of Principle and Code of Practice for Approved Persons (APER) to deal with the FCA in an open and cooperative manner and to disclose appropriately any information as to which the FCA or the PRA would reasonably expect notice. Firms have a similar obligation under Principle 11 of the FCA’s Principles for Businesses (PRIN). Similar obligations exist for PRA-regulated firms.
As noted above, any whistleblowing report regarding a concern within a firm and made to the FCA may mean that an approved person and/or firm has failed in its obligations to make appropriate on-going disclosures to the FCA and lead to disciplinary action.
Therefore, it is paramount that firms have adequate whistleblowing policies in place so that the firm can make disclosures in a controlled and timely manner, rather than processes being such that a whistleblower is more likely to make a disclosure. The FCA Handbook states that firms are encouraged to consider adopting appropriate internal procedures to encourage workers with concerns to blow the whistle internally about matters relevant to the functions of the FCA or PRA (see SYSC 18.2.2(1)) and sets out in more detail the types of procedures that larger and smaller firms may wish to put in place (see SYSC 18.2.2).
Indeed, the guidance on the FCA website specifically states (notwithstanding that details of the FCA’s own hotline are provided) that the FCA encourages individuals first to use internal whistleblowing procedures before approaching the FCA.
What Should Firms Do?
Given the FCA’s current emphasis on whistleblowing, every firm should endeavour to ensure that its internal reporting and whistleblowing policies are adequate – this applies regardless of the size of the firm. This would not only provide a process by which approved persons and firms are able to make disclosures to the regulator appropriately, but could also assist the firm in demonstrating that it has “adequate procedures” in place for the purposes of the Bribery Act.