Last week, Germany's Financial Supervisory Authority (BaFin)
unveiled a centralized platform for receiving whistleblower
complaints, including anonymous complaints, of alleged violations
of supervisory provisions within the financial sector. The
move appears to represent a shift in German ideology toward a more
favorable view of anonymous reporting, which for many years was
discouraged in Germany and more broadly in the EU due to the risk
of "organized systems of denouncement." Under the
new program, whistleblowers may submit reports in writing (on paper
or electronically), by phone (with or without recording the
conversation), or verbally. BaFin's press release
announcing the program states that it will make the anonymity of
whistleblowers a "top priority," and that it will not
pass on the identity of whistleblowers to third parties. The
program is "aimed at person with a special knowledge of a
company's internal affairs – for example because they are
employed there or have some other contractual relationship or
relationship of trust with the company."
BaFin was required to implement this new platform due to an
amendment to the German Act on Financial
Services Supervision. Notably, the Act only applies
to the financial services sector, not including external
accountants, tax consultants and attorneys. It provides
that employees working in the financial services
sector may not be held liable for reporting potential or
actual breaches of law under either employment law or criminal
law, unless the report was false or grossly negligent.
In addition to BaFin's own platform, the Act requires
covered financial institutions to provide internal
procedures for employees to report violations of
supervisory rules, including anonymously. However, the Act
provides no details as to implementation, Board responsibilities,
or the protection of whistleblowers. Therefore, banks and
insurers will want to stay abreast of further developments in this
Notably, the German Act implements an EU regulation recently
adopted, and reporting procedures regarding violations of
supervisory rules are currently being harmonized throughout
Europe. As a result, financial institutions can expect
similar provisions to be enacted in other EU jurisdictions. The
German act is also another example of the growing efforts of
governments to encourage reporting of wrongdoing to regulators. For
Ontario Securities Commission recently enacted regulations
patterned after Dodd-Frank which will become effective on July
14 that establish a whistleblower office at OSC which will provide
for cash awards to whistleblowers whose reports result in
enforcement actions and fines.
In light of these important developments, companies with German
operations, particularly in the financial services sector, should
review and update their whistleblower policies and procedures to
ensure they are in accordance with the new law and with best
practices. Companies will want to have robust mechanisms for
employees, as well as vendors and other third parties, to report
violations of law internally and for those concerns to be promptly
and properly investigated. By creating a trusting environment
for whistleblowers to report internally, a company can go a long
way toward uncovering and remedying violations of law quickly and
effectively and without regulatory intervention.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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