11 August 2016
Shop Your Neighbour
New rules for financial whistleblowers may lead the way for others.
by Frank O’Nomics
The financial services industry may finally be about to do something for the greater good. At the start of next month, new legislation on whistleblowing will be brought in for financial firms and, if successful, could create a template that could be utilised across society to include all corporate and governmental bodies.
Reporting inappropriate behaviour has historically been very difficult and fraught with both stress and stigma. The term “whistleblower” often makes people think of a trouble–maker, or a controversial character such as Edward Snowden, rather than someone who is acting out of a sense of moral duty. Informing on colleagues can make for a very unpleasant working environment and, if the perpetrators are more senior, then the whistle-blower is in danger of losing their job. It is easy to see how an encouragement to speak up could have avoided many of the recent problems for banks (there are undoubtedly many who saw that swaps were being mis-sold, and more who stood by and watched while others manipulated libor) but there is a much broader issue here. Could systematic abuse in care homes or the sale of faulty products be averted by whistleblowing? It is worth considering just how the financial services industry is proposing to improve its behaviour, whether the new legislation goes far enough, and how that might be translated in a broader sense across our society.
The first of the new measures requires financial services firms to appoint a “whistleblower’s champion”. Ideally this should be a non-executive director (i.e. someone whose interests will not be served by keeping issues quiet), who will ensure that all employees are informed about the Prudential Regulation Authority and Financial Conduct Authority whistleblowing services and present a report to the board at least once a year. Second, firms must implement effective arrangements for the disclosure of “reportable concerns” (these have a wide definition, including breaches of internal rules and behavior that could damage the reputation of the firm or its financial well-being). Firms are obliged to protect a whistleblower’s identity if he or she so wishes, and to provide feedback to the whistleblower. This is important – just how many people have said that they reported concerns but heard nothing back having done so? (This would apply to libor fixing concerns, but could just as easily be raised by those who complained about Jimmy Savile if we were to extend the new rules beyond finance.) A survey by Public Concern At Work (a charity established in 1993 to help make whistleblowing work) and the University of Greenwich showed that 75% of those workers who reported a concern received no response from their employers. Fortunately, under the new legislation, firms may utilise a third party to help them comply (which may make it easier to ensure impartiality, avoid conflicts of interest and reduce some of the costs), but the key is that the firm itself is responsible for its compliance. Both employees and managers will have to be trained, with employees being given examples of what might constitute a reportable concern and how to take action, and managers learning how to handle the concerns and protect the whistleblower.
The problem with this new legislation is that it may just not go far enough. Firstly, one can question the scope, the range of firms to whom the legislation applies. Currently only UK deposit-takers with over £250 million in assets, PRA-designated investment firms and insurers and reinsurers are covered. The rules will not apply to UK branches of overseas banks, and for all other regulated firms the rules have the status of “non-binding guidance” – which, given the cost of implementation and training, will generally mean that they will be ignored. Secondly, beyond areas where the regulator would reasonably expect notice (such as the reporting of suspicious transactions), there is no regulatory duty on a firm’s staff to blow the whistle. The underlying feeling that “nobody likes a grass” may still leave many reluctant to speak up and, while firms may take steps to preserve anonymity, it is often very clear to colleagues just who the whistleblower is by the nature of the concern that is raised. Whistleblowers may take some solace from the fact that they will receive compensation if they are seen to receive detrimental treatment as a result of speaking out, and it is worth noting that awards to whistleblowers at employment tribunals are uncapped.
Ultimately whistleblowing, or speaking up, can only work if firms have an open culture. It is key that companies, both inside and outside the financial services sector, are concerned not just to address any violation of the letter of the law, but also the spirit of the legislation and any abuse of the firm’s standards. Whistleblowing is not just about high-value fraud, scandals or cover-ups, it may well be about other failings that could impact key areas such as health and safety. In this regard the new financial service legislation may set a very helpful template for application in a much broader sense. Public Concern At Work are engaged in doing some benchmarking, to demonstrate just what best practice should look like and the financial services industry provides a good starting point. They face a lot of issues. It is difficult to make rules that are proscriptive as different organisations have different procedures – will the process be determined by HR or compliance, for example? There is also an issue with how you measure something as unquantifiable as corporate culture at the outset, and then how do you evidence a degree of change or improvement? The FCA received 948 whistleblowing disclosures in 2013, 1,367 in 2014 and 1,104 in 2015. Does this represent an improvement in a culture of speaking-up or a general deterioration in behaviour? Nevertheless, a concept of speaking-up, which escapes some of the negative connotations of the term “whistleblowing”, is something that needs to be ingrained in corporate culture. Public Concern At Work are trying to achieve a situation where “dangers, wrongdoing and serious risks that threaten the public good are deterred or at least detected before serious damage is caused”. Prevention has to be the ultimate objective. To quote Edmund Burke “The only thing necessary for the triumph of evil is for good men to do nothing.”
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