Out-Law News 2 min. read
08 Mar 2016, 2:30 pm
Financial regulation and enforcement expert Michael Ruck said that the numbers were a "disappointment" that may "reignite and give renewed impetus" to the debate around the possible introduction of financial incentives for UK whistleblowers, along the lines of those available in the US. The figures emerged as new rules aimed at increasing individual accountability in the banking sector and making it easier for employees to 'blow the whistle' on poor practice came into force.
"It is disappointing in the sense that the FCA has worked hard to review and improve its whistleblowing procedures and increase the resources dedicated to the area," Ruck said.
"There has long been debate around the introduction of financial incentives for whistleblowers, and the numbers may reignite and give renewed impetus to that discussion. It will be interesting to see whether the regulator's increased focus on personal accountability under the Senior Managers' Regime will lead to a rise in whistleblowing," he said.
Banks, building societies and other firms regulated by the Prudential Regulation Authority (PRA) are required to appoint a senior manager to act as 'whistleblowers' champion' under the Senior Managers' Regime, which came into force this week. The rules require those firms to put in place mechanisms to allow their employees to raise concerns internally and to regulators, and the whistleblowers' champion will be responsible for the effectiveness of these arrangements.
The figures obtained by Pinsent Masons showed that conduct and compliance regulator the Financial Conduct Authority (FCA) received 1,104 whistleblowing reports in 2015, down from 1,367 in 2014. However, the regulator has created at least 1,049 'whistleblowing intelligence logs' as a result of these reports, up from 1,003 last year.
Ruck said that the figures were unlikely to reflect fewer allegations of misconduct in the banking sector, as tip-offs received by regulators in other markets increased over the same period. For example, the number of whistleblowing cases raised by the Securities and Exchange Commission (SEC) in the US, where whistleblowers receive financial incentives for reporting dishonest or illegal activities, has increased by 28% since 2013 – with the majority of reports received by the SEC from overseas coming from the UK.
Speaking as the SMR and related Certification Regime (CR) for banking staff, and the Senior Insurance Managers Regime (SIMR) for senior insurance staff, came into force, UK chancellor George Osborne said that UK financial firms now faced "some of the toughest sanctions in the world".
The SM&CR forms part of the UK government's programme of banking reform following the financial crisis of 2008, and was developed following the recommendations of the independent Parliamentary Commission on Banking Standards (PCBS) in July 2013. The 'senior managers' part of the new regime gives named senior individuals within firms the responsibility for certain areas of the business, while the 'certification regime' requires firms to assess the fitness and propriety of staff in certain roles.
New conduct rules now also apply to individuals subject to either the SMR or the CR, and will be extended to all staff within relevant firms except those carrying out purely ancillary functions next year. These rules set out basic standards of good conduct for staff at banks, building societies and PRA-regulated investment firms. A new criminal offence for senior managers whose actions or decisions cause their institution to fail has also come into force, with a maximum sentence of seven years in prison or an unlimited fine.
Both the UK's financial regulators, the PRA and the FCA, have announced that they will apply relevant aspects of the SMR to their own senior members of staff, including the requirement to allocate core responsibilities to designated senior managers. The Payment Systems Regulator (PSR), as a subsidiary of the FCA, has also applied the SMR internally.