Following recommendations in 2013 by the Parliamentary Commission on Banking Standards, the Financial Conduct Authority ("FCA") and Prudential Regulatory Authority ("PRA") published new rules on 6 October 2015 in relation to whistleblowing. These rules are set to build on existing good practices within the financial services industry and the new Senior Managers Regime by codifying a set of measures aimed at encouraging employees to blow the whistle on malpractice. Of significance, however, is the fact that the PRA and FCA have decided not to impose a generalised duty on staff of relevant firms to "blow the whistle".
The measures will apply to UK deposit-takers with assets of £250m or more, PRA-designated investment firms and (re)insurers within the scope of the Solvency II directive, as well as the Society of Lloyd's and Lloyd's managing agents. It is also anticipated that other firms may wish to comply voluntarily.
Firms will be expected to put into place a number of practices which were largely favoured by respondents to the consultation:
- Appoint a "whistleblowers' champion"
Under the Senior Managers Regime, firms must appoint a non-executive director to act as a "whistleblowers' champion" (as it is not concerned with day-to-day operations) who will oversee the internal whistleblowing channels and preparing the annual report to the board. This person will be responsible for overseeing the integrity, independence and effectiveness of these procedures and reporting on them to the board at least once a year. The report must also include information on any employment tribunals involving whistleblowers that the firm has lost (which the firm will be required to report to the FCA). The report itself will also be available to the PRA or FCA upon request.
- An internal whistleblowing channel
The internal whistleblowing channel should be set up to handle "all types of disclosure from all types of person" within each firm. This does not mean that the whistleblowing channel must investigate every disclosure made to it. It does, however, entail that every report is considered and filtered to the relevant area of the organisation that is better placed to deal with the concern. Whistleblowing channels must protect the confidentiality of whistleblowers, ensure the firm is able to handle anonymous disclosures, appropriately assess and escalate matters reported (including, where necessary, to the PRA, FCA or other law enforcement agencies), track the outcome of reports, provide feedback, maintain written policies, procedures and records and ensure that whistleblowers are not victimised. These should all be subject to inspection by a firm's audit and compliance functions.
Firms will have to consider whether training can make their whistleblowing arrangements more effective. This will include providing different types of tailored training for staff (on the need to report and how to do so), managers (on how to recognise and protect whistleblowing), the whistleblowers' champion and staff manning the whistleblowers' service (on how to deal with confidentiality, how to assess severity and spot wider trends).
- Employment contracts
Firms are expected include wording in employment contracts and settlement agreements which is designed to clarify that nothing in them prevents individuals from making a protected disclosure. This will also encompass a prohibition on the use of warranties which require signatories to state that they know of no information which could form the basis of a protected disclosure and have not made one.
- Inform employees
All relevant firms are required to inform their UK-based employees about the FCA and PRA whistleblowing services. Likewise, appointed representatives and tied agents are required to tell all UK-based employees about the FCA whistleblowing service.
Full implementation of the new rules for firms is to be achieved by 7 September 2016. However, the whistleblowers' champion must be appointed by 7 March 2016. In the meantime, the FCA and PRA are planning on consulting "soon" on the application of these rules to UK branches of overseas banks and then, after the introduction and assessment of effectiveness of the rules, consulting on whether similar requirements should be applied more widely.
More information for firms on implementing the new rules is available in the supervisory statement on whistleblowing (SS39/15) recently issued by the PRA (http://www.bankofengland.co.uk/pra/Pages/publications/ss/2015/ss3915.aspx).