The FCA’s new Senior Managers’ Regime came into force this week. Naturally, the press has focused on the requirement for banks to map responsibilities for key functions and the substantial increase in personal accountability amongst senior staff. But the FCA has also introduced a broad set of new rules that mean banks and other financial services firms will have to overhaul their existing policies and approach to whistleblowing.
Since the banking crisis, many commentators have bemoaned the lack of adequate protection for genuine whistleblowers. Over recent years, the number of whistleblowing reports made to the regulator has grown, but there is still a very real concern that would-be whistleblowers are held back by fear of the stigma and potential career damage that can come with taking a stand.
To tackle this, with effect from this week, deposit-takers (banks, building societies, credit unions)must have appointed a ‘Whistleblowers’ Champion’. This is a new, mandatory position, which must be filled by a senior individual (often a non-executive director), who will play a key role in implementing a package of new measures.
Those new measures themselves come into effect in September this year and are aimed at encouraging transparency and improving how financial services firms handle concerns raised by employees (including whistleblowers).
Firms will have to overhaul their existing whistleblowing policies and their approach to how they handle concerns. It will not be enough to see this as merely a policy and compliance issue as the new rules are intended to drive a fundamental, cultural shift - to encourage employees to raise any concerns they may have and to provide a structured and supportive environment in which they may do so. To try to achieve this, the rules introduce five key strands:
- The regulator has introduced the new and very broad concept of “reportable concerns”. Firms must establish arrangements to handle not just concerns about possible legal breaches (classic ‘whistleblowing’), but also any other “reportable concern” – which includes any concern about a breach of a firm’s own policies or procedures or any other behavior that harms or is likely to harm the reputation or financial well-being of the firm;
- Firms will have to present an annual whistleblowing report to the board, capturing and reporting on what concerns have been raised and how they have been addressed;
- Firms will be obliged to communicate with staff and stakeholders about the new rules and the firm’s internal processes and procedures. They will have to arrange appropriate training for employees and their managers and must ensure that staff, and even external representatives and agents are made aware of the FCA’s and the PRA’s whistleblowing services;
- Firms must inform the regulator if they lose a whistleblowing claim in the employment tribunal; and
- Gagging clauses will not be permitted in settlement agreements – indeed, employees must be advised that they may not contract out of their right to blow the whistle.
For now, these rules will only apply only to a limited group of larger firms (deposit-takers). But they also have the status of non-binding guidance for all other FCA regulated entities. So, the FCA may consider that any regulated firm that does not have regard to the new rules, may have failed to meet other binding FCA principles (such as the requirement to take reasonable care to organize and control its affairs responsibly and effectively). Ignore them at your peril.
The idea was to improve accountability and the reputation of the City after a string of scandals, as well as addressing why no head of a bank has been punished as a result of the financial crisis. While the most contentious element — a “guilty until proven innocent” provision was removed at the last minute by the Treasury — the regime still holds to account the very top of financial institutions for failings on their watch. Senior managers and key non-executive directors risk fines or bans from the industry unless they can show they took all reasonable steps to prevent wrongdoing within their teams. There is also a parallel criminal offence of recklessly mismanaging a financial institution that fails.