Championing whistleblowing in the banking sector

 What action should financial services firms be taking to ensure they are providing suitable internal procedures to allow employees to blow the whistle? Jillian Naylor, employment law partner at Linklaters, considers the new rules from the Financial Conduct Authority and the Prudential Regulation Authority and what it means to be a ‘whistleblowers’ champion’.

Original news

New rules for whistleblowing in deposit-takers, LNB News 06/10/2015 161

Following recommendations by the Parliamentary Commission on Banking Standards (PCBS) in 2013 that measures be put in place to allow banking employees to raise concerns internally, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have published new rules on whistleblowing. Two separate policy statements detail the bodies’ expectations with regard to the new requirements. The new rules will come into effect in September 2016 and will apply to deposit takers with over £250m in assets and to insurers subject to the Solvency II Directive.

What is the background to the PRA’s proposals?

In 2013 the PCBS recommended that banks should ensure that they had internal procedures which allowed their employees to blow the whistle, and that a senior person should take responsibility for these procedures. In response, the FCA and PRA launched a consultation in February 2015 on a number of proposals as part of their drive to improve accountability and raise standards in financial services. The latest policy statements contain the new rules which have been developed following the consultation.

What are the main provisions on the policy statement?

The key points of the new regime are:

  • firms must appoint a senior manager (under the senior managers regime/senior insurance managers regime) who is a non-executive director to be a ‘whistleblowers’ champion’—the whistleblowers’ champion is responsible for oversight of the firm’s whistleblowing policies and procedures, and for ensuring an annual report on whistleblowing is presented to the board, and made available to the regulator
  • firms must put internal arrangements in place to handle any type of disclosure by any person (including anonymous disclosures), not just those which are currently caught by Public Interest Disclosure Act 1998—this means firms may potentially have to deal with disclosures by customers, and even employees of competitors
  • firms must put in place systems which can protect confidentiality, escalate concerns to the appropriate regulator or law enforcement agency, track the outcome of whistleblowing reports, provide feedback to whistleblowers and take reasonable steps to protect whistleblowers from victimisation
  • firms must inform the FCA/PRA if they lose an employment tribunal claim for whistleblowing where the finding relates to a claim that the whistleblower was victimised
  • UK-based employees must be informed about the FCA and PRA whistleblowing services, and that they are made aware that they can approach the regulator directly without first raising a concern with their employer
  • firms must ensure their appointed representatives and tied agents inform their own staff about the FCA/PRA whistleblowing arrangements, and
  • settlement agreements must contain an explanatory term which makes it clear the employee is not prevented from making a protected disclosure, and cannot contain warranties that the employee is not aware of or has not made any protected disclosures

However, the FCA/PRA will not impose a general regulatory duty on staff to blow the whistle.

Please note that these rules will only be binding on:

  • UK deposit takers with assets of £250m or greater (including banks, building societies and credit unions)
  • PRA-designated investment firms, and
  • insurance and reinsurance firms within the scope of Solvency II and the Society of Lloyd’s and managing agents

However, the rules should be taken as best practice guidance for all firms.

What will firms have to do as a result of the proposals?

The first step will be to appoint a whistleblowers’ champion. This must be done by 7 March 2016. The whistleblowers’ champion should then oversee the implementation of the above proposals which must be completed by 7 September 2016.

As the requirements set out above are extensive, firms may need to conduct a full review of their existing systems to deal with whistleblowing and expand these if necessary. Special care must be given to ensure that the systems can preserve confidentiality, track the outcome of whistleblowing disclosures, and provide feedback where appropriate. As a concern can be reported by any person, including by a customer or competitor, firms must ensure they have an efficient system for filtering whistleblowing concerns from other matters such as customer complaints or general grievances. The PRA has envisaged that some firms may choose to create internal specialist units to deal with whistleblowing, or to outsource some aspects of the firm’s whistleblowing systems. If systems are outsourced, the firm is responsible for monitoring them and ensuring the quality of the service. The PRA has stated that firms must ensure there are different methods of communication available to whistleblowers (for example, both a dedicated phone line and email address) and that the systems are able to deal with anonymous disclosures. For some firms which do not currently have sophisticated whistleblowing systems, getting such a system in place by September 2016 will be a major undertaking.

The PRA has also made it clear that it expects firms to consider whether training can help make their whistleblowing arrangements more effective. A firm’s training should include training for all UK staff members about:

  • the need to report wrongdoing
  • how to do so, and
  • how a protected disclosure should be made to regulators

Managers should also receive tailored training on how to:

  • recognise when an individual is blowing the whistle
  • protect whistleblowers, and
  • provide feedback to them on how their concern is being dealt with

Specialist training may also be appropriate for the whistleblowers’ champion and staff who are in charge of the firm’s whistleblowing service. Implementing such extensive training requirements is going to be both costly and time-consuming for firms, especially given the relatively short timescale to implement the new rules.

What advice should lawyers be giving to firms?

Take steps to appoint the whistleblowers’ champion as soon as possible. The whistleblowers’ champion will need to be highly engaged with the whistleblowing process, and be prepared to be approached by employees or other individuals with whistleblowing concerns. They should also have access to resources and information to perform their role, which would include access to independent legal advice and dedicated training. The whistleblowers’ champion is expected to oversee and be engaged with the process of implementing the new rules, so should be appointed before any significant changes are made to internal whistleblowing procedures and systems.

Firms should start to review their existing whistleblowing arrangements to see where improvements or adjustments will need to be made to bring systems into line with the new rules. Firms that decide to outsource their whistleblowing arrangements will need to consider any procurement process in the timescale. As training will be required for all UK staff, with specialist training for some, firms should consider how they will roll out such training if what is currently provided is not adequate. Firms should also review their contractual arrangements, staff handbook, relevant policies and any standard-form settlement agreements to ensure that there is no breach of the rules relating to protected disclosures.

 

Interviewed by Jon Robins.

 

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

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