'Culture shift' needed to encourage whistleblowing in financial firms, says expert

The Financial Conduct Authority (FCA) received only 1,104 whistleblowing reports in 2015, down from 1,367 in 2014, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. New whistleblowing rules enacted in 2015 came into force this week

"Since the FCA announced new rules in 2015, we are yet to see much of a shift to an environment in which individuals feel confident to report bad behaviour," said Michael Ruck, a financial regulation and enforcement expert at the firm.. "Instead, financial institutions are finding an increased interest from employees around their responsibilities and ownership, with many escalating concerns internally on a defensive basis."

"Senior managers' decisions are in danger of becoming based on personal interest and liability, rather than applying a risk-based approach. To encourage an increase in whistleblowing reports, there is a clear need for whistleblowers' champions to follow the approach outlined by the regulators; to avoid such a defensive practice which will only further worsen with the implementation of new whistleblowing requirements," he said.

Since 7 September, firms have been required to put mechanisms in place to encourage their employees to raise concerns internally and to regulators. They have also been required to appoint a senior manager as a 'whistleblowers' champion', responsible for the effectiveness of these arrangements.

The term 'whistleblowing' refers to an employee telling a prescribed person or a person in authority at their employer about alleged dishonest or illegal activities occurring within the firm. Whistleblowers may make their allegations to other parties in the company, which is known as 'internal' whistleblowing; or to external regulators, law enforcement and, in more limited circumstances, the media.

The senior managers' regime (SMR) came into force in March 2016 and forms part of the UK government's programme of banking reform following the financial crisis of 2008. The SMR is designed to make it easier for the regulators to hold senior individuals within banks personally accountable for failings on their watch, and requires firms to assign responsibility for certain areas of the business to named senior individuals.

Since the introduction of the new regime six months ago, 35,000 senior bank staff have been removed from the financial services register, according to research conducted by the FCA last month.

Ruck said that although it was "open to debate" whether this reduction was entirely a direct result of the new rules", the figures were "a clear indication of individuals with senior management responsibilities taking the decision to terminate their roles in financial services firms, many of whom took the decision in light of the additional requirements and responsibilities under the SMR".