On Tuesday morning (6 October 2015), the FCA and the PRA published final rules and guidance requiring firms to put in place formalised whistleblowing procedures. We have highlighted some of the key points to note from these policy statements (PS15/24 & PS24/15) below.
Background to the new rules
In 2013, in the wake of the LIBOR scandal, the Parliamentary Commission on Banking Standards (PCBS) found that “many people turned a blind eye to misbehaviour and failed to report it” and firms were advised to “ensure that their staff have a clear understanding of their duty to report an instance of wrongdoing”. It recommended that banks put in place mechanisms to allow their employees to raise concerns internally (i.e. ‘blow the whistle’) and that they appoint a senior person to take responsibility for the effectiveness of these arrangements (who would be personally accountable).
Instances of whistleblowing have been increasing in recent years. During 2013, the FCA received 1,040 whistleblowing reports, a 60% increase from 2012. This trend continued into last year, as between 1 November 2013 and 31 October 2014, the FCA’s whistleblowing team received 10,287 contacts and opened 1,368 whistleblowing cases. Nonetheless, in February 2015, the FCA & PRA jointly launched a consultation on a package of new rules aimed at formalising whistleblowing procedures for deposit-takers, PRA-designated investment firms and insurers. A summary of the key provisions following the consultation are set out below.
Summary of the key requirements
Under the new rules, firms will be required to:
- Appoint a non-executive director to be the “Whistleblowers’ champion” (a role which aligns with the prescribed responsibility for whistleblowing procedures under the new SMR and SIMR regimes). The Whistleblowers’ champion will have responsibility for oversight of the firm’s policies and procedures for whistleblowing. The good news is that in light of the consultation responses it received, the FCA has adjusted the scope of this role to ensure it is suitable for a NED. In particular, the FCA have clarified that the whistleblowers’ champion need not have a day-to-day operational role handling disclosures from whistleblowers;
- Put internal whistleblowing arrangements in place that are able to handle all types of disclosure from all types of person by 7 September at the latest (including tracking the outcome of whistleblowing reports, providing feedback to whistleblowers (where appropriate) and maintaining records of whistleblowing reports);
- Inform UK-based employees about the FCA and PRA whistleblowing services;
- Provide appropriate training for UK based employees, managers of UK based employees (wherever they are based) and employees responsible for operating the firm’s internal whistleblowing arrangements;
- Require their appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service;
- Include text explaining employees’ legal rights in respect of making protected disclosures in any new settlement agreements (firms have discretion about whether to include such text in employment contracts);
- Ensure that nothing in any employment contract or settlement agreement prevents or discourages an employee from making a protected disclosure;
- Put in place “reasonable measures” to ensure that whistleblowers are not victimised;
- Inform the FCA if they lose an employment tribunal case brought by a whistleblower; and
- Present a report on whistleblowing to their board at least annually.
The new rules do not impose a regulatory duty on a firm’s staff to blow the whistle (beyond any other rules which may require individuals to escalate certain matters).
Who do the new rules apply to?
The new rules will apply to:
- UK deposit-takers with assets of £250m or greater, including: banks; building societies; and credit unions;
- PRA-designated investment firms;
- insurance and reinsurance firms within the scope of Solvency II; and Lloyd’s managing agents.
Do the new rules apply to UK branches of overseas banks or other firms?
No, not to begin with but watch this space. Whilst the FCA noted that many respondents identified challenges that UK branches of overseas banks would face in implementing the new rules, the FCA has stated that it will be consulting on this separately.
In addition, the FCA has indicated that once the rules have been in effect long enough to assess their effectiveness, it will consider whether similar requirements should be applied more widely to other firms it regulates, such as stockbrokers, mortgage brokers, insurance brokers, investment firms and consumer credit firms. In the meantime, the text of the rules will act as non-binding guidance for such firms.
Key transitional dates
7 March 2016
- The requirement to assign responsibilities to a whistleblowers’ champion will take effect.
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.
7 September 2016
- Firms are required to comply with the new rules.