Whistleblowing: the pressure mounts: New regime for the FI sector

At a glance:

• New requirements for deposit-takers, designated investment firms and insurers
• Regulators to report annually on whistleblowing issues
• Professional bodies offering new guidance for insurers and actuaries

PRA and FCA issue new whistleblowing requirements

On 06 October 2015, the PRA and FCA issued three documents setting out a package of new rules on whistleblowing in large financial institutions:

• Whistleblowing in deposit-takers, PRA-designated investment firms and insurers - PS24/15 
• Whistleblowing in deposit-takers, PRA-designated investment firms and insurers - SS39/15 
• PS15/24: Whistleblowing in deposit-takers, PRA-designated investment firms and insurers 

With the exception of the requirement to appoint a whistleblowers' champion, which applied from 07 March 2016, the new whistleblowing rules came into effect on 07 September 2016.

The new rules apply to:

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

The key rules on whistleblowing require a firm to:

• Appoint a Senior Manager as the whistleblowers’ champion (further detail in relation to the champion's role is available here).

• Put in place internal whistleblowing arrangements able to handle all types of disclosure from all types of person.

• Ensure that settlement agreements explain that workers have a legal right to blow the whistle and do not contain warranties from the worker which require them to disclose to the firm that:

  • they have made a protected disclosure, or

  • they know of no information which could form the basis of a protected disclosure.

    The PRA suggests that nothing in any employment contract or settlement agreement should prevent or discourage a worker from making a protected disclosure (or a further protected disclosure) to the PRA.

• Tell UK-based employees about the FCA and PRA whistleblowing services.

• Present a report on whistleblowing to the board at least annually.

• Inform the regulator if it loses an employment tribunal with a whistleblower.

• Require its appointed representatives and tied agents to tell their UK-based employees about the regulators’ whistleblowing service.

• Include appropriate training for UK-based employees, managers of UK-based employees and employees responsible for operating the firm’s internal arrangements.

The rules can be found in SYSC 18 of the FCA Handbook and PRA PS24/15.

A practical checklist on the changes to policies and procedures needed as a result is available here.

UK branches of overseas banks

In September 2016, the PRA and FCA published consultation papers (PRA CP35/16 and FCA CP16/25) on extending aspects of the new regime to UK branches of overseas banks and insurers. The regulators have since confirmed that these aspects of the rules will apply to UK branches of overseas banks (but not insurers) from 07 September 2017.

In short, staff working for the UK branch will need to be informed about the FCA and PRA whistleblowing services, and any relevant parent or sister company whistleblowing arrangements which they can make use of.

The senior managers and certification regime

In 2014, the Parliamentary Commission determined that banking needed to change. As a result, the senior managers and certification regime (SMCR) was introduced for banks, PRA regulated investment firms, building societies and credit unions with effect from 07 March 2016. (Further details on the regime are available here).

The new whistleblowing rules (outlined above) are designed to work in conjunction with the SM&CR. In particular, the rules are expressly linked to fitness and propriety. Evidence that a firm had acted to the detriment of a whistleblower could call into question the regulators’ assessment of its suitability status and the status of any relevant employees.

As above, one of the requirements is that firms appoint a Senior Manager as the whistleblowers’ champion (further detail in relation to the champion’s role is available here).

Extension of the senior managers and certification regime

HM Treasury has issued a policy statement setting out the Government’s proposals to extend the Senior Managers and Certification (SM&CR) regime to all sectors of the financial services industry including insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.

Consultation is expected during the summer of 2017 with it being intended that implementation of the newly extended regime should come into operation during 2018. TA consultation paper on how the regime will apply to the wide range of firms that will be covered is expected shortly (July 2017).

Further detail on the extension of SM&CR is available here.

Annual reporting for regulators

The Government’s response to the 2014 consultation on the effectiveness of the whistleblowing framework made it clear that the Government would introduce a new power to require prescribed persons (which includes numerous regulators) to report annually on whistleblowing issues.

The Prescribed Persons (Reports on Disclosures of Information) Regulations 2017 (SI 507/2017) came into force on 01 April 2017. The Regulations impose a new duty on all prescribed persons to produce an annual report on whistleblowing disclosures made to them by workers.

Prescribed persons includes regulators and other bodies to whom a worker can make a protected disclosure instead of, or in addition to, their employer. The list of prescribed persons is available here.

BEIS has produced guidance providing advice on how prescribed persons can comply with their legal requirements (which is available here).

The purpose of the reporting requirement is to:

• ensure more systematic processes across all prescribed bodies in the way public interest disclosures are handled, working towards a consistent standard of best practice for handling disclosures, and
• provide greater reassurance to a whistleblower that action is being taken by the prescribed person and, as a result, increase the confidence in the actions of the prescribed person.

The note issued by the FCA on the 23 February 2015 (at the same time as the joint consultation paper) made clear the increased emphasis that the regulator is placing on improving its procedures for dealing with whistleblowers. The conclusion to the note points out “Over 2013/14, we thoroughly reviewed and revised our approach to whistleblowing, in part to respond to the recommendations made by the PCBS. We will continue to make improvements so that we can provide a better service to whistleblowers and make the most of their unique contribution to our understanding of the regulated sector and the discharge of our statutory functions.”

Regulators and Professional bodies offering guidance

Both the PRA and the FCA have recently set up new webpages which outline their approach to whistleblowing:

• the PRA’s webpage, and
• the FCA’s webpage.

The Chartered Insurance Institute has issued guidance for firms on how to ensure whistleblowing arrangements are effective. As the guide points out, the FCA may well take into account the existence and quality of a whistleblowing policy when assessing the organisation’s adherence to its Principles for Business. For more on the CII guidance, see here.

The Institute and Faculty of Actuaries has also publicised case studies and online resources on whistleblowing for its members, emphasising the need for employees to be able to report concerns. The Institute suggests that, in the absence of an internal whistleblowing procedure, employees should either turn to a suitable NGO, such as Public Concern at Work, a professional body, or the regulator. It is likely that further professional and trade groups will publish guidance on whistleblowing with examples relevant to specific sectors.