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Blowing the Whistle – Are You Ready For Change?

The Financial Conduct Authority (“FCA”) and Prudential Regulation Authority (“PRA”) have published new rules on whistleblowing with the aim of encouraging a culture whereby individuals feel able to report concerns and misconduct without fear of reprisal.

Why have the rules changed?

In February 2015, following recommendations from the Parliamentary Commission on Banking Standards and against the backdrop of an increasing number of whistleblowing reports being made directly to the FCA; the FCA launched a consultation on whistleblowing. The recommendations made by the Parliamentary Commission on Banking Standards were that banks should:

  • put in place mechanisms to enable employees to raise concerns internally; and
  • appoint a manager to take responsibility for the effectiveness of the whistleblowing mechanisms.

Those recommendations have been implemented by the FCA which published the new rules on 6 October 2015. Relevant Firms now have until 7 March 2016 to appoint a whistleblowers’ champion, with the remaining rules coming into effect on 7 September 2016, the same date as the rest of the Senior Managers Regime. This will give the whistleblowers’ champion several months to oversee the Relevant Firm’s preparation for the implementation of the new rules.

Who do the new rules apply to?

The new rules will apply to:

  • UK deposit-takers with assets of £250m or greater (including 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;

(collectively 'Relevant Firms').

The new rules will also act as non-binding guidance for all other firms regulated by the FCA but will not apply to UK branches of overseas banks for the time being. It is possible that the rules will be extended to more firms in future.

What do you need to know about the new rules?

The new rules introduce a number of requirements which Relevant Firms will need to adopt which are summarised below.

  • appoint a Senior Manager as their whistleblowers’ champion;

This role should be fulfilled by someone who is a non-executive director, although there is no need to create such a role if it does not already exist within the firm’s structure. The whistleblowers' champion will have responsibility for "ensuring and overseeing the integrity, independence and effectiveness" of the Relevant Firm's policies and procedures on whistleblowing. The whistleblowers' champion should have access to independent legal advice and training, along with sufficient information to carry out their responsibilities.

  • put in place internal whistleblowing arrangements able to handle all types of disclosure from all types of person;

Relevant Firms must adopt procedures to enable them to handle all types of whistleblowing disclosure (including anonymous disclosures), from all types of whistleblower (including, for example customers, suppliers and employees). These procedures must ensure the effective assessment and escalation of disclosures. Although not all disclosures will result in an investigation, the consideration given to each disclosure should be properly recorded as it will be required for board reports.

The Relevant Firm's procedures for dealing with whistleblowing must be available in writing to UK-based employees, and appropriate training should be provided for UK-based employees, managers of UK-based employees, and employees responsible for operating the firm's internal arrangements.

  • tell UK-based employees about the FCA and PRA whistleblowing services;

UK-based employees of Relevant Firms must be notified about the FCA and PRA whistleblowing services and that there is no requirement that they use the firm’s internal processes first.

  • require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.

Relevant Firms must also ensure that their appointed representatives and tied agents inform their UK-based employees about the FCA whistleblowing services.

  • present a report on whistleblowing to the board at least annually;

The report must be prepared for the board, at least annually, and be available to the FCA and PRA on request. However, there is no need for the report to be made public and there is no specific guidance on the content of the report which gives Relevant Firms some flexibility. The preparation of the report should be overseen by the whistleblower’s champion.

  • inform the FCA if it loses an employment tribunal with a whistleblower;

Where an employment tribunal finds that a whistleblower has suffered detriment or been unfairly dismissed as the result of making a protected disclosure, the Relevant Firm must notify the FCA of this outcome.

  • put text in settlement agreements explaining that workers have a legal right to blow the whistle;

Relevant Firms must include text in any settlement agreements with employees explaining the employee's legal rights. Settlement agreements must expressly state that employees may make protected disclosures if they wish, and sample wording is provided in the rules. The rules further require that settlement agreements must not include any warranties by employees that they do not know any information that could form the basis of a protected disclosure, or require them to state whether or not they have made a protected disclosure.

Relevant Firms have discretion as to whether or not these provisions are included in employment contracts, and whether or not they request employment agencies include this text in settlement agreements entered into with workers.

Conclusion

Tackling a perceived culture of secrecy is clearly a priority for the regulator and whilst the FCA recognises that a substantial number of firms will already have a strong framework in place to facilitate whistleblowing and to protect those who make protected disclosures, the new rules will require Relevant Firms to consider, adjust and implement suitable policies before 7 September 2016.

In the face of increased scrutiny from the regulator and in response to client demand, DWF has developed dwf speak out, a bespoke whistleblowing hotline that provides an effective and efficient solution to help firms provide their employees, contractors and suppliers with a confidential method of reporting concerns related to their working environment. dwf speak out enables employers to pre-empt and tackle issues - all with the assistance and advice from DWF.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.