Under fire? The FCA’s treatment of whistleblowers

Sarah Hitchins

The UK’s Financial Conduct Authority (FCA) has been pretty vocal about its expectations about how firms should treat whistleblowers. However, it looks like the tables have been turned on the FCA. Both the Treasury Select Committee and the Complaints Commissioner have recently questioned the FCA’s own approach to handling whistleblowers.

 

shutterstock_428759101Whistleblowers: A valuable resource for the FCA

The FCA has found whistleblowers to be a valuable source of intelligence. As we reported last year, in 2014/15, the FCA received 1,340 disclosures from whistleblowers – 24% of which contributed to enforcement activities, consumer protection or were otherwise of ‘significant value’ to the FCA.

The whistleblowing figures for 2015/16 are set to be released soon, but my bet is that we will see an even higher number of whistleblower disclosures. This is a trend which is unlikely to go away in a hurry. Not least because from September certain UK firms will be required to provide their employees with training about the fact that they can blow the whistle directly to the FCA or the Prudential Regulation Authority (PRA).

The FCA has not been shy about stating its expectations of firms when it comes to whistleblowers. Firms are required to have in place robust whistleblowing systems and controls, and foster a culture where employees feel able to ‘speak up’ about concerns. In addition, if a whistleblower is subjected to detriment, then this could also give rise to questions about the fitness and propriety of any individuals involved in that detrimental treatment.

 

But does the FCA live up to its own expectations?

Recently, the Treasury Select Committee and the Complaints Commissioner have raised doubts about the FCA’s own approach to handling whistleblowers:

 

  • shutterstock_126286412Treasury Select Committee: Last month, the Treasury Select Committee published correspondence with the FCA about its treatment of whistleblowers (available here, here and here). In particular, the Treasury Select Committee was concerned about press reports which suggested that the FCA had ‘betrayed’ the confidence of whistleblowers by passing sensitive information it had received from an organisation and its members to the subjects of their allegations. From the correspondence, it appears that the FCA decided not treat the organisation in question as a whistleblower. The Treasury Select Committee asked the FCA to confirm how it decides whether an informant is a whistleblower, whether the informant is informed of this decision, and what assurance the FCA can give to those who are so treated that their involvement will remain confidential. We are still waiting to see how the FCA responds.
  • Complaints Commissioner: Just the other day, the Complaints Commissioner upheld an individual’s complaint about how the FCA had handled their whistleblowing disclosure. In short, the FCA failed to take the whistleblower up on his offer of additional contemporaneous evidence to support the allegations he had made. Instead, the FCA dismissed the whistleblower’s allegations and said that it would not be taking any further steps to investigate them. The Complaints Commissioner criticised the FCA’s approach. It held that the FCA should have asked the whistleblower to provide the additional contemporaneous evidence he/she had offered and that the FCA was wrong to have simply dismissed the whistleblower’s allegations and subsequent complaint about the way they had been treated.

 

What this means for firms

It is safe to say that the FCA would not be happy if a regulated firm had freely disclosed information received from a whistleblower to the subject of the whistleblower’s allegations, or failed to properly investigate a whistleblower disclosure.

shutterstock_84837166However, the fact that issues have been flagged about the FCA’s treatment of whistleblowers is unlikely to mean that there is any let-up in terms of what the FCA expects of firms and the way they handle whistleblowing. Rather tellingly, Andrew Bailey chose culture as the topic of his last speech as CEO of the PRA, before he takes up his new position as CEO of the FCA in July. As a result, embedding ‘good’ culture in firms (which includes having effective whistleblowing measures) is likely to remain a high priority for the FCA.

Following these issues, the FCA is likely to be thinking hard about its approach to handling whistleblowers, especially given that the doubts raised by the Treasury Select Committee and Complaints Commissioner have been aired publicly. The FCA will be keen to try and ensure that it still receives disclosures from whistleblowers – something which is perhaps becoming more challenging given the lucrative and highly-publicised financial incentives offered to whistleblowers in the US. The list of countries offering financial incentives to whistleblowers could be set to get even longer – under the new EU Market Abuse Regulation (which comes into force on 3 July 2016), Members States will be able to offer financial incentives to individuals who blow the whistle about market abuse in certain circumstances. The UK has taken the decision more generally not to remunerate whistleblowers, but other Member States may well do so.

 

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