UK: On My Whistle: Are You Ready To Meet The FCA/PRA's New Whistleblowing Requirements?

Last Updated: 3 December 2015
Article by Nicola Whiteley and Mandy Perry

Relevant firms have until 7 March 2016 to appoint a "whistleblowers' champion", who then has until 7 September 2016 to oversee their firm's readiness for the new whistleblowing regime: this much we know. But what will this mean for HR personnel in relevant firms and what best practice lessons can HR in other financial services organisations learn from these changes?

The new whistleblowing regime: an overview

Since the 2013 Parliamentary Commission on Banking Standards recommendations were published, the FCA has been examining ways to ensure that individuals working in financial services feel able and encouraged to speak up when they have concerns to avoid the same financial scandals of the past.

In working towards this aim, the FCA has developed a package of rules on whistleblowing "designed to build-on and formalise examples of good practice already found in the financial services industry". The policy statement and rules were announced last month, following a public consultation.

At the same time as they are encouraging openness and challenge through whistleblowing, the FCA are imposing new requirements on individuals aimed at holding them accountable for their actions. This comes in the form of the Senior Managers (or Senior Investment Managers, as applicable) and Certification Regime, and Conduct Rules, each coming into effect 7 March 2016. Whatever level of responsibility an individual in a relevant firm holds, the new whistleblowing rules will be relevant to them.

We note that, despite some umming and aahing on the topic, there is no current sign of the FCA adopting the whistleblower bounty approach of the US Securities and Exchange Commission ("SEC"); perhaps it heard that the SEC received the highest number of foreign tip-offs under the programme from the UK in Fiscal Year 2015!

The new rules will affect "relevant firms", i.e. (i) UK deposit-takers with assets of Ł250m or greater (including banks, building societies and credit unions), (ii) PRA-designated investment firms, and insurance and reinsurance firms within the scope of Solvency II and to the Society of Lloyd's and managing agents.

Whilst the initial rollout may be relatively small, however, the FCA has plans to consult with UK branches of overseas banks about these rules "soon", and intends to consider in due course whether or not the rules would be effective and useful in other firms regulated by the FCA, including investments firms, stockbrokers, insurance and mortgage brokers, and consumer credit firms. Given comparative past experience, this expansion seems likely and will widen the catch considerably.

In the meantime, the rules will still be non-binding guidance for other FCA regulated firms and notably they also state that firms not otherwise subject to them "may nonetheless wish to adopt the best practice." Gauntlet thrown.

So, what does this mean for you?

Appointing a whistleblowers' champion

The first step is clear: appoint a whistleblowers' champion. Next, breathe a sigh of relief: you do not have to call that individual "the whistleblowers' champion", if you do not want to! With that burning question answered, how do you select the right person for the job? No jousting tournaments required: the champion should be a Non-Executive Director (NED) (although firms without NEDs will not be required to appoint one just to fulfil the role) and must be a senior manager or director who is subject to the Senior Managers Regime or Senior Insurance Managers Regime.

No doubt your champion will want to know if their days will be filled with concerned employees walking into their office and making disclosures. Whilst they would be expected not to turn away individuals who come to them, this is not the role that the FCA envisages. They should have oversight of the firm's activities and approach to whistleblowing and should take overarching responsibility for the regime and the firm's accountability to the regulator.

The FCA has reassured the industry that the task of a champion is commensurate with an NED position, and so it is clear that others within the firm will share responsibility for the day to day implementation of these requirements. It is likely that some of these responsibilities will fall to HR and/or to in-house employment counsel.

Implementing the whistleblowers' package of rules

The whistleblowers' champion and the firm have until 7 September 2016 to implement a package of reforms aimed at encouraging people to voice concerns.

  1. Certain language must be included in settlement agreements: The intention is to make clear that nothing in the settlement agreement is aimed at discouraging disclosures. Certain other language, such as warranting no knowledge of information that could become a protected disclosure, will be outlawed. HR should ensure that template agreements are updated and ensure that those who negotiate settlements are aware of this change.
  2. Firms should also consider whether to include similar positive language in employment agreements, and to require agencies to include the same in agreements with agency workers.

  3. There will be a requirement to notify the FCA if the firm is unsuccessful in an Employment Tribunal claim with a whistleblower: this responsibility is likely to sit with HR. We recommend you add a step in your case management system to remind you to contact the FCA in relevant cases. Teach your team about the requirement, and factor it in to decisions about settlement

  4. The firm must establish internal whistleblowing protocols and procedures capable of handling all types of disclosure from all types of person: The FCA's name for disclosures is "reportable concerns" and these are wider than a "protected disclosure" under the Public Interest and Disclosure Act. A reportable concern includes a protected disclosure, but is also extended to "a breach of the firm's policies and procedures" and "behaviour that harms or is likely to harm the reputation or financial well-being of the firm". As a result, your current set up may be insufficient, and you should be on the lookout for any type of disclosure that might meet this lower threshold.

  5. The FCA is aiming for a culture of challenge, and we recommend that the firm's current measures be audited and strengthened where required. It could help to design and roll out a training programme to ensure all managers, in particular, are aware of what might constitute a disclosure and how to escalate it. This means being able to respond to disclosures from anyone, not just employees.

    This doesn't mean investigating every one line gripe and groan, but it does mean having a mechanism in place to recognise a disclosure and deal with it appropriately. If HR won't be investigating these disclosures, consider sharing investigation best practice with colleagues.

  6. The firm must inform employees based in the UK about the FCA/PRA whistleblowing services: HR may well be involved in structuring communications and providing detail on the mechanisms available and follow up steps.

  7. The firm should require tied agents and appointed representatives to inform their employees about the FCA whistleblowing services: As above, HR may be well-placed to advise the whistleblowing champion on approach.

  8. An annual report to the Board is required: It is likely that the whistleblowers' champion will call on HR each year to contribute. Consider tracking relevant information and statistics to streamline the reporting process. This might include: details of training, updates made to policies and procedures, (anonymised) details of grievances, claims and disciplinary action.

You can always do more... 

As is so often the case, the FCA's reforms could lead to other developments that are within HR's remit, for example:

  • Disciplinary and grievance policies: Consider whether to update your firm's disciplinary policy to specify that disclosures which are deliberately false or maliciously made, will be subject to disciplinary action. You may also want to include reference to your whistleblowing practices in your grievance policy, so that an employee can make an informed decision about how to raise a concern.

  • Bullying and harassment policies: If it isn't already clear, consider updating your bullying and harassment policy to specify that the firm takes the detrimental treatment of whistleblowers seriously.

  • Maintaining confidentiality: The firm will want to offer whistleblowers as much confidentiality as possible. This may require emails and documents to be protected, and managers to be educated about the how and why.

  • Contacting the regulator: The FCA has stressed in its policy statement that it wants staff to know that they can approach the regulator, rather than making the disclosure internally. Consider whether to publicise or display the FCA's contact details in, for example, staff kitchens and/or on the intranet.

  • Cultural shift: Whistleblowing is on the rise. The FCA reports a 28% increase in disclosures it received in financial year 2014/2015 to 1340. (In 2007/2008, the FSA received only 138 disclosures). It's clear the FCA not only expects this to continue to increase, but that it requires firms to change their culture. HR can support this shift by having a positive message: encouraging employees to speak up, thanking employees that do, and following up on complaints of detriment.

So there you have it; now, on your marks, get set...

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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