On 6 October 2015, the Financial Conduct Authority (“FCA“) and the Prudential Regulation Authority (“PRA“) published new rules on whistleblowing which will take effect from 7 September 2016. The rules were introduced following recommendations in 2013 by the Parliamentary Commission on Banking Standards that banks put in place mechanisms to allow their employees to raise concerns internally and that they appoint a senior person to take responsibility for the effectiveness of the whistleblowing arrangements. The measures seek to encourage people to voice their concerns so that any wrongdoing is identified and addressed. In an environment where whistleblowing reports have steadily been on the increase since the financial crisis, these latest measures may give rise to even more D&O claims.

The new rules

The new rules require a firm to:

  • appoint a Senior Manager as their whistleblowers’ champion;
  • implement internal whistleblowing arrangements which are able to handle all types of disclosure from all types of people;
  • include text in settlement agreements explaining that workers have a legal right to blow the whistle;
  • inform 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 an employment tribunal with a whistleblower; and
  • require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.

Further information about the new rules can be found in our recent article: Financial incentives for whistleblowing

Impact on insurance

In light of the new rules, there is the likelihood that cases involving whistleblowing will increase. It is therefore advisable for insurers and insureds to ensure there is clarity in terms of scope of cover for such claims in their D&O policies.

Issues to look out for include the following:

Internal investigations:

Often a company will run its own internal investigation immediately after the whistle is blown in relation to the matters complained of. This internal investigation may run in conjunction with legal proceedings, or may take place before proceedings are issued. D&O policies should be clear as to whether they extend cover to such investigations as they may give rise to significant legal costs.

Is the whistleblower an “insured”?

In standard “A-side” coverage (which provides direct indemnification to the directors, officers, employees), the whistleblower may be an insured under the D&O policy. However, some policies contain an “insured v insured” exclusion which excludes cover for a claim brought against a director by the company or other directors. If there is an “insured v insured” exclusion, it may be worth considering whether an exception to the exclusion may be agreed for whistleblowing claims.

Could an admission trigger an exclusion?

If an admission is made in a whistleblower report, this may trigger the conduct exclusions in the D&O policy. It is standard for D&O policies to exclude coverage for claims regarding illegal benefits, such as fraud, accounting of profits, personal profiting, or any act whereby the insured makes a wrongful gain.

The FCA reported a 28% increase in whistleblowing reports (for the year 2014/2015 as compared to the previous year), and the new rules are likely to result in even greater reporting. Companies should therefore carefully review and monitor their D&O policies to ensure they have appropriate protection in the event a whistleblowing claim is made. Insurers should make the most of the opportunity to market their D&O products and stand ready for an increase in claims.