FCA and PRA Rules On Whistleblowing
The UK Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published new whistleblowing rules in October 2015 (click here for FCA policy and here for PRA) aiming to ‘encourage a culture in which individuals raise concerns and challenge poor practice and behaviour’. The new rules are a result of the consultation carried out by the FCA and PRA in February 2015. The rules are designed to operate in conjunction with the Senior Managers Regime and the Senior Insurance Managers Regime which will come into force for PRA-regulated firms in March 2016. As Tracey McDermott, the Acting Chief Executive of the FCA put it, “[i]t is in the interests of the industry and regulators alike that wrongdoing is identified and addressed promptly ....[and] [f]or individuals to have the confidence to come forward, it is vital that firms have in place adequate policies on dealing with whistleblowers and that a senior manager takes responsibility for overseeing these policies.” The new rules are “designed to build on and formalise examples of good practice already found in parts of the financial services industry and aim to encourage a culture in which individuals working in the industry feel comfortable raising concerns and challenge poor practice and behaviour."
To whom will the new rules apply?
The new rules will apply to ‘Relevant Firms’ which include UK deposit-takers with assets of £250million or more. This includes banks, building societies and credit unions, PRA-designated investment firms, and insurance and reinsurance firms within the scope of Solvency II, the Society of Lloyd’s and managing agents.
For all other regulated firms, the rules will act as non-binding guidance. At present the rules do not apply to UK branches of overseas banks. However, the FCA policy statement suggests that this will be explored in a future consultation.
What steps are required to be taken under the new rules?
Under the new rules Relevant Firms will be required to:
- Appoint a Senior Manager as the firm’s whistleblowers’ champion. The champion will be a non-executive director and will be responsible for ensuring and overseeing the effectiveness, integrity and independence of the firm’s policies and procedures for whistleblowing. Although the champion need not have a day-to-day operational role handling disclosures from whistleblowers, the champion will have to consider an appropriate course of action if contacted with a disclosure directly. The champion will also be responsible for reporting to the firm’s board.
- Put internal whistleblowing arrangements in place catering for all types of disclosures from all types of person. These internal arrangements will be required to ensure the ‘effective assessment and escalation’ of concerns. The FCA acknowledges that not all disclosures will result in investigative action. However, due consideration should be given to each case and this should be recorded. The firm’s internal arrangements should:
- Allow for disclosures to be made through a range of communication methods (for example, through a designated telephone number or email address).
- Allow disclosures by individuals who wish to remain anonymous.
- Include reasonable measures to ensure that a person who makes a whistleblowing disclosure is not subject to any victimisation.
- Allow for the provision of feedback to a whistleblower where appropriate.
- Provide for the preparation and maintenance of records of disclosures which are made and the outcomes of those disclosures.
- Provide for appropriate training for UK based employees, managers and employees responsible for the firms internal whistleblowing arrangements.
- Inform UK-based employees about the FCA’s and PRA’s whistleblowing services.
- Employees should be made aware that they are entitled to approach the regulators at any stage, whether or not they have raised the issue internally first.
- Require its appointed representatives and tied agents to inform their UK-based employees about the FCA’s whistleblowing service.
- Include text in settlement agreements explaining that workers have the right to make protected disclosures. The new rules suggest some appropriate text. In addition, Relevant Firms will be prohibited from requiring individuals entering into settlement agreements to warrant that they know of no information that could form the basis of a protected disclosure and state whether they have made a protected disclosure.
- Inform the FCA if it loses an employment tribunal case brought by a claimant alleging that the individual was unfairly dismissed or subjected to a detriment on grounds of whistleblowing.
- Present a report on whistleblowing to its board at least annually. This report must be available to the FCA and PRA on request but not made public.
When will the rules apply?
Relevant Firms are required to assign responsibilities to a ‘whistleblowers champion’ by 7 March 2016 (when the Senior Managers Regime takes effect). The whistleblowers’ champion will then oversee the preparation for the remainder of the rules coming into force.
Relevant Firms must be compliant with all of the new rules by 7 September 2016. Relevant Firms will therefore need, as part of their preparations for compliance with the Senior Managers Regime or Senior Insurance Managers Regime to make arrangements to establish a whistleblowers’ champion, to update their whistleblowing policies to reflect the new rules and to amend their standard settlement agreements to make clear the entitlement of employees to make whistleblowing disclosures.