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2016 brings new whistleblowing rules for financial institutions

Next year the financial services sector will be subject to a new whistleblowing regime. Published last month, the new regime represents a significant expansion on the scope of the previous whistleblowing rules and guidance.

The majority of the new rules come into effect on 7 September 2016, with the exception of the requirement to appoint a whistleblowing champion, which comes into effect on 7 March 2016.  

So, who will the new regime apply to and what is changing?

Does the new regime apply to me?

The new rules will apply to:

  • deposit-takers with assets over £250 million;
  • PRA-designated investment firms;
  • insurance and reinsurance firms within the scope of Solvency II; and
  • the Society of Lloyd's and managing agents. 

The rules will have the status of "non-binding guidance" to all other firms regulated by the FCA, who may wish to comply with them on a voluntary basis. If they choose to do so, they can tailor their approach in a manner reflective of their size, structure and headcount. 

It should be noted that whilst the new rules do not currently extend to UK branches of overseas banks, or other regulated firms, the FCA has stated that it will consider the wider application of the rules in the future.

What are the changes?

The new rules aim to formalise the good practice already found in the sector, and to encourage a culture where individuals feel able to speak up. The new rules impose obligations on firms to:

  • Put in place internal whistleblowing arrangements that are able to handle all types of disclosures from all types of persons.
  • Inform UK based employees about the whistleblowing services of the PRA and FCA.
  • Appoint a whistleblowers' champion.
  • Present a report on whistleblowing to the board at least annually.
  • Inform the FCA if it loses an employment tribunal with a whistleblower.
  • Ensure that settlement agreements expressly state that workers may make protected disclosures and do not contain warranties related to protected disclosures.

The key changes in detail

Whistleblowing arrangements

The new rules require relevant firms to establish, implement and maintain appropriate and effective arrangements for disclosures from whistleblowers. These must include up to date written procedures that are readily available to UK-based employees. 

The arrangements need to be able to handle all types of whistleblowing disclosure (including anonymous disclosures) from all types of whistleblower (eg customers as well as employees). Although not all concerns need be raised through the whistleblowing procedure, it will act as a second port of call once other routes (eg grievance or customer complaints procedures) have been exhausted.

The arrangements should ensure the effective assessment and escalation of reportable concerns by whistleblowers, including, where appropriate, to the FCA or PRA. Not all disclosures are expected to result in investigative action, but firms are expected to give due consideration to each case and to prepare and maintain records of reportable concerns and treatment. Firms should also provide feedback to whistleblowers where this is feasible and appropriate.

Firms must also take reasonable steps to protect whistleblowers from victimisation (although they can offer fewer protections to whistleblowers who are not employees). Firms can still take action against those who have made false/malicious disclosures.

Training and information

Appropriate training should be provided for UK-based employees, managers of UK-based employees, and employees responsible for operating the firm's internal arrangements. The rules contain specific details on what the contents of the training should cover.

Firms must also (and must ensure that appointed representatives or tied agents) inform their UK based employees that they may disclose reportable concerns to the PRA or the FCA and the methods for doing so. They must make clear that staff are entitled by law to approach regulators if they choose to and can do this at any stage, whether or not they have raised the concern internally first. 

Whistleblowers' champion

Firms must allocate a "whistleblowers' champion" (although this specific title need not be used within the firm) who will be responsible for "ensuring and overseeing the integrity, independence and effectiveness" of the internal whistleblowing procedures and polices, and for preparing an annual report to the board about their operation.  

He or she does not need to have a day-to-day operational role handling disclosures from whistleblowers (although, if a whistleblower chooses to contact the whistleblowers' champion directly, he or she will need to consider an appropriate course of action). 

The whistleblowers' champion must be a senior manager or director, who is subject to the Senior Managers Regime or the Senior Insurance Managers Regime. He or she should have a level of authority and independence within the firm and access to resources (including access to independent legal advice and training) and information sufficient to enable him to carry out that responsibility. It is expected that the whistleblowers' champion will be a non-executive director, although the FCA has made clear that a firm would not be expected to appoint one just for this purpose. He or she can be based overseas; as long as he or she can nonetheless perform the role effectively.

Unlike the rest of the new regime (which takes effect from 7 September 2016), the requirement to assign responsibilities to a whistleblowers' champion will take effect on 7 March 2016.  Between 7 March 2016 and 7 September 2016, the whistleblowers' champion will be responsible for overseeing the steps the firm takes to prepare for the new regime. Accordingly, firms need to act reasonably quickly in considering, appointing and training a whistleblowers' champion.

Annual Report and notification of employment tribunal claims

The FCA will require relevant firms to prepare an annual report for the board on the operation and effectiveness of its systems and controls in relation to whistleblowing. This report should be made available to the FCA or the PRA on request, but will not be made public. The final FCA rules and guidance are silent on the report's content, meaning that firms are free to tailor the report as appropriate. However, the PRA has stated that the report should include details of any employment tribunals involving whistleblowers which the firm has lost

Separate to the requirement to produce an annual report, firms will be required to promptly notify the FCA where an employment tribunal finds that a whistleblower suffered detriment or was unfairly dismissed as a result of blowing the whistle. 

Settlement agreements and employment contracts

The new rules require that wording in settlement agreements (and, at the firm’s discretion, in employment contracts) must not deter staff from whistleblowing.
Firms are required to include text explaining workers' legal rights in any new settlement agreements (suggested wording for inclusion is provided in the rules). In addition, they are prohibited from including any warranties in which workers are asked to confirm that they know of no information that could form the basis of a protected disclosure or to state whether they have made a protected disclosure.

Next steps

The FCA recognises that a substantial number of firms to whom the new regime will apply already have strong whistleblowing policies and procedures in place.

Nonetheless, the new regime will require firms to consider, adjust and implement suitable arrangements as necessary, against a fairly tight deadline and in conjunction with the implementation of a number of other new legislative regimes (the Senior Managers Regime, the Solvency II Directive, the Fourth Money Laundering Directive etc).

Given the tight timelines and increasing workload, firms would be advised to start to consider their new whistleblowing policies and procedures early. We can assist you in implementing these changes, including drafting new policies, appointing and training an appropriate whistleblowing champion, updating template settlement agreements, and creating/delivering employee training. If this might be helpful, please do get in touch. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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