The FCA and PRA have announced a new package of rules aimed at formalising whistleblowing procedures within certain financial institutions. The rules will be implemented on 7 September 2016; however firms covered by the new regime must comply with the requirement to appoint a ‘whistleblowers’ champion’ by the earlier date of 7 March 2016.
Following the LIBOR scandal in 2013, whistleblowing has fast risen up the regulatory agenda. In June 2013, the Parliamentary Commission on Banking Standards recommended that banks should put in place mechanisms to allow workers to raise concerns internally and appoint a senior person to take responsibility for the effectiveness of these arrangements. Earlier this year, the PRA and FCA consulted with firms on whether such measures should be introduced. The new rules, which are contained in a package of publications from the PRA and FCA, are intended to be applied alongside the Senior Managers Regime (SMR) and the Senior Insurance Managers Regime (SIMR).
The FCA recognises that many of the firms covered by the new rules already have rigorous internal whistleblowing procedures in place. The new regime aims to build on and formalise those good practices and encourage individuals to raise concerns and challenge poor behaviours in the industry.
Who is covered by the new rules?
The new rules will apply to:
- UK deposit-takers with assets of £250 million or greater, including banks, building societies and credit unions
- PRA-designated investment firms
- Insurance and reinsurance firms within the scope of Solvency II and Lloyd’s managing agents
The new rules do not currently extend to UK branches of overseas banks, but the FCA has stated that it will be consulting on this separately, so watch this space. Once the requirements have been in force for long enough to assess their effectiveness, the FCA will consider whether to extend the regime to a wider category of regulated firms, such as stockbrokers, mortgage brokers, insurance brokers, investment firms and consumer credit firms. In the meantime, the rules will serve as “non-binding guidance” for such firms.
What are the new requirements?
The key requirements of the new rules are summarised below:
- Appointment of a ‘whistleblowers’ champion’: By 7 March 2016, firms must appoint a Senior Manager to be the firm’s ‘whistleblowers’ champion’. Their role will be to ensure and oversee the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing.
- Establishing internal whistleblowing channels: Firms will be required to establish and maintain an independent whistleblowing ‘channel’ designed to handle all types of disclosures from all types of individuals (including tracking the outcome of whistleblowing reports, providing feedback to whistleblowers (where appropriate) and maintaining appropriate records of reports).
- Settlement agreements/employment contracts: Provisions must be included in any settlement agreements with workers to explain the individual’s legal rights, and confirm that they may make protected disclosures if they wish. Settlement agreements and employment contracts must not include provisions which purport to limit an individual’s right to blow the whistle.
- Employment Tribunal claims: Firms must advise the FCA if they lose a whistleblowing claim at the employment tribunal.
- Requirement to prepare an annual report: The whistleblowers’ champion should oversee the preparation of an annual report on whistleblowing for the board.
- Training: Appropriate training must be provided to UK-based employees, managers of UK-based employees (wherever they are based), and employees responsible for operating the firm’s internal whistleblowing arrangements.
- Notify individuals about the FCA and PRA whistleblowing services: Firms must inform UK-based employees about the FCA and PRA whistleblowing services, and require appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.
As the implementation date of 7 September 2016 edges ever-closer, firms will need to respond proactively to ensure they are ready for the new regime. As a first step, firms must appoint a whistleblowers’ champion by no later than 7 March 2016, and ensure that he or she receives adequate training and advice on their role to enable them to oversee the implementation process in the run up to 7 September 2016. As well as reviewing whistleblowing arrangements generally, firms should revisit wording in precedent employment contracts and settlement agreements to ensure compliance with the new requirements.