Whistleblowing – is the regime working in the financial services sector?

In recent blogs, we have looked at key issues identified from the FinCEN files and then how the lack of an effective compliance culture can impact on the operations of financial institutions. This time, we focus on whether the whistleblowing regime is working within the financial sector and if it has any credibility amongst those who would be most likely to use it.

In the UK, the government defines whistleblowing as reporting certain types of wrongdoing. This will usually be something seen in the workplace, although this is not always the case. The malpractice that is disclosed has to be in the public interest i.e. it must affect others, such as the general public.

Whistleblowers in the UK are protected by law, and therefore should not be treated unfairly or dismissed because of the act of whistleblowing. Concerns can be raised at any time about an incident that happened in the past, is happening now, or it is believed will happen soon. A confidentiality clause (‘gagging clause’) in a settlement agreement is not valid where whistleblowing is involved.

Complaints that count as whistleblowing and are protected by law include:

  • A criminal offence such as fraud
  • A company is breaking the law
  • A belief that someone is covering up a wrongdoing

Based on the above it would seem that whistleblowers have nothing to fear from reporting immoral or unethical conduct or behaviour, however, the reality can be somewhat different from the ideal whistleblowing world.

Why aren’t whistleblowers being heard?

Back in 2012, the Protect Whistleblowing Charity published its first Silence in the City (SITC) report, which looked at why whistleblowers had not raised concerns that came to light during the financial crash and LIBOR scandal. The second report looked at whether anything had changed since the introduction of the FCA Whistleblowing Rules in 2016. The latest report looked at 352 cases of individuals from the financial services sector who contacted the charities helpline (Jan 2017 – Dec 2019).

This SITC report found the top six areas for whistleblowing reports to be for:

  • Breach of legal or regulatory obligations (19%)
  • Fraudulent criminal activity (11%)
  • Incorrect reporting to a client or third party (9%)
  • Breaches in data protection or client confidentiality (7%)
  • Competence or conduct of staff (5%)
  • Discrimination or harassment (5%)

The reported outcomes for whistleblowers did not shine a good light on the regime, with 31% being victimised or disciplined by management (a 9% increase since the first report), 30% where no action was taken over reports, 22% were dismissed, 12% resigned, 4% were victimised by co-workers, and 1% were suspended.

It is of note that none of the whistleblowers mentioned being thanked for making a report.

The SITC report also provided some significant insight into how firms dealt with the reports made, with 33% of reporters saying their concerns were ignored by the firm and 14% of concerns were denied. The vast majority (75%) of whistleblowers said that they were provided with no feedback about the reports they had made, which the SITC report indicated was a failure by firms to embrace the spirit of the FCA Whistleblowing Rules.

A lack of confidence in the regime

The report’s findings raise some real concerns over whether the current whistleblowing regime is actually effective, and poses the question about whether whistleblowing reports related to money laundering concerns have not been made due to the lack of confidence potential whistleblowers have in it.

In June 2020, a female head of compliance in a London brokerage company won her unfair dismissal case and was awarded over £75,000. She claimed that her firm tried to use an unrelated issue to get rid of her when she had raised concerns over potential financial deals.   

In 2015, a major bank was fined $15m by US regulators after its CEO attempted to unmask a whistleblower. The CEO was personally fined £642,430 by UK regulators and his bank bonus was cut by £500k.

Clearly, regulators have been trying to send out a message that firms should take whistleblowing seriously, however, based on recent reports and publicised cases they still have a long way to go.

Discover how to protect your firm from malpractice and subsequent cases of whistleblowing with our comprehensive library of GRC eLearning courses.

You can also download our latest FCA resource to understand what’s on the agenda for the FCA in 2020-21 and they key areas your workforce should be aware of.

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