05 November 2015

Whistleblowing in the financial services sector - new rules introduced by the FCA and PRA

This article was written by Chloe Scott (Associate)

The Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”) have announced new rules on whistleblowing that will apply to certain firms in the banking and insurance sectors. The new rules are largely based on the proposals in the FCA and PRA's whistleblowing consultation and aim to help encourage individuals to raise concerns and to challenge poor practice, in the aftermath of the financial crisis.

Who do the new rules apply to?

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; and
  • Insurance and reinsurance firms within the scope of Solvency II, and the Society of Lloyd’s and its managing agents.

For all other authorised firms, the rules should be read as non-binding guidance. 

What are the new rules? 

A summary of the new rules is set out below:

  1. Whistleblowers’ champion -  the new rules require firms to appoint a senior manager (who is expected to be a non-executive director) as a “whistleblowers’ champion” who will be responsible for overseeing the firm’s whistleblowing policies and procedures.
  2. Internal whistleblowing arrangements – firms must put in place internal whistleblowing arrangements to handle all types of whistleblowing disclosure (not just those relating to regulatory matters or protected disclosures under the Public Interest Disclosure Act 1998) from any person (which could therefore extend to disclosures by customers or competitors). The whistleblowing arrangements in place must protect confidentiality, allow for disclosures through a range of communication measures, ensure the effective assessment and escalation of whistleblowing reports, and ensure the maintenance of appropriate records and procedures.
  3. Inform employees – firms must tell UK-based employees about the FCA and PRA whistleblowing services and ensure employees are aware that they can approach the regulator at any stage (without raising a concern internally first). Firms must also require their appointed representatives and tied agents to inform UK-based employees about the FCA and PRA whistleblowing services.
  4. Report to the board – under the new regime, a report on whistleblowing must be presented at least annually to the board (which is to be made available to the FCA or PRA on request).
  5. Report to the FCA - firms must inform the FCA if they lose an employment tribunal claim for whistleblowing (where the claimant successfully argues they were dismissed or subjected to detriment as a result of making a protected disclosure).
  6. Settlement agreements – settlement agreements must make clear that the employee has a right to make a protected disclosure and must not include warranties that the employee is not aware of, or has not made, a protected disclosure. The FCA has indicated that firms have discretion about whether to include such text in employment contracts.

When does the new regime take effect?

Firms must appoint a whistleblowers’ champion by 7 March 2016 (the same date that the Senior Managers & Certification Regime comes into force) to oversee the implementation of the new whistleblowing regime. Firms will then have until 7 September 2016 to comply with the remaining requirements. 

What should firms do now?

Firms within scope of the regime should consider what arrangements need to be put in place to implement the rules by next year’s deadline. Although firms will likely have existing whistleblowing procedures in place, they will need to ensure that they are compliant with the new regime, which is likely to cast the net wider than the existing whistleblower protections firms have in place.

Firms should first identify an appropriate Senior Manager to act as the whistleblowers’ champion, who will then be responsible for the transition into the new regime by September 2016. Other practical considerations that firms should bear in mind include: whether the whistleblowers’ champion or other senior employees require training and whether amendments to template settlement agreements or the staff handbook are required. 

Regulated Authorised firms outside of the scope of the regime, although not strictly bound by the rules, should consider whether to apply the rules as best practice.

Looking forward

For now, firms outside of the scope of the new regime can choose whether to apply the rules (which will constitute non-binding guidance). However, the FCA has indicated that, once the rules have had time to bed in, it will consider extending the regime to other regulated firms.  The FCA has also indicated that it will consult on extending the rules to include UK branches of relevant overseas firms, to align application with the Senior Managers & Certification Regime. Therefore, it is possible that this new regime will be rolled out across the whole financial services sector in due course.

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