Whistleblowers play an important role in exposing poor practice in regulated firms, something the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have recognised with the publication of new rules on whistleblowing for firms operating in the financial services sector. These reforms, along with the new Senior Managers’ Regime, are part of their wider policy of reforms designed to improve individual accountability in the regulated sector. The rules are intended to build on and formalise the good practice already in place in many firms in the sector.
The new rules will come into full effect in September 2016 and will apply to:
• UK deposit-takers (i.e. banks, building societies and credit unions) with assets of £250million or more;
• PRA-designated investment firms; and
• insurance and reinsurance firms within the scope of Solvency II and to the Society of Lloyd’s and managing agents.
However, other firms that are subject to FCA supervision should still take note of the new rules, which are intended to act as non-binding guidance for them. There is also potential for broader application of the rules and the FCA has announced that it will soon consult on the extension of the regulations to UK branches of overseas banks and other regulated firms such as stockbrokers, mortgage brokers, insurance brokers, investment firms and consumer credit firms.
What will change?
In addition to complying with the existing legislation designed to protect whistleblowers, the new rules will require relevant firms to:
• appoint a whistleblowers’ champion who will be responsible for ensuring the integrity, independence and effectiveness of whistleblowing policies and procedures. This must be a director or a senior manager who is subject to the Senior Managers Regime or Senior Insurance Managers Regime. It is expected that the whistleblowers’ champion will be a non-executive director. If a firm does not have a non-executive director it will not be required to appoint one just for this purpose;
• include text explaining workers’ legal rights to make protected disclosures in any new settlement agreements. Suggested wording is provided in the guidance but alternative wording with the same meaning will also be acceptable;
• put internal whistleblowing arrangements in place that are able to handle all types of disclosure from all types of people (such as self-employed, agents, employees of subsidiaries, appointed representatives, customers and competitors) and not just employees;
• consider reports of any behaviour which “has or is likely to have an adverse effect on the firm’s reputation or financial wellbeing” and not just the categories of wrongdoing covered by the existing legislation;
• tell UK-based employees about the FCA and PRA whistleblowing services;
• require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service;
• inform the FCA if it loses an employment tribunal case with a whistleblower; and
• present a report on whistleblowing to its board at least annually.
The requirement to assign responsibilities to a whistleblowers’ champion will come into force on 7 March 2016, the same date as the rest of the Senior Managers Regime. Affected firms should begin to take steps to integrate it into their preparations. The whistleblowers’ champion should then be responsible for overseeing the steps the firm takes to implement the remaining parts of the new rules, which are due to come into force on 7 September 2016.
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