Whistleblowers And The Regulators – The Latest Worldwide Trends

Chris Hamblin Contributing Editor London 13 May 2024

Whistleblowers And The Regulators – The Latest Worldwide Trends

WealthBriefing recently attended a webinar hosted by NAVEX, the governance, risk and compliance (GRC) software firm, on the subject of whistleblowing at large financial and other firms all over the world. NAVEX produces benchmarking reports that examine compliance trends in the financial industry and other lines of business.

Someone who works for an organisation is said to have "blown the whistle" when he/she passes on information which he/she reasonably believes to expose wrongdoing or a cover-up at that organisation. There are no known countries in which compliance officers receive such rewards, since that function counts as part of their jobs, but all other employees are eligible.

In 2015 the UK's Financial Conduct Authority obliged private banks and other financial firms to appoint senior managers to 'champion' whistleblowers, to set up internal whistleblowing arrangements that could handle disclosures of all kinds from all types of people, to give workers the legal right to report various types of abuse without fear or favour, and to present reports about whistleblowing to their boards at least once a year. The FCA also commanded them to inform it about the employment-tribunal cases that they had lost against whistleblowers and to require their appointed representatives and tied agents to tell their British employees about its regulatory whistleblowing service. The US Dodd-Frank Wall Street Reform and Consumer Protection Act brought a similar regime into effect years earlier in 2010.

NAVEX launched the first outsourced call centre for whistleblower hotlines in 1981 and now also uses incident-management software. Its database of reports that pertain to ethics and compliance is the largest in the world, according to Carrie Penman, its chief risk and compliance officer who chaired the virtual meeting. NAVEX has collated a year's data into a report that looks at whistleblowing trends worldwide, which ought to be of interest to board members and compliance officers at private banks – especially international private banks – and other investment firms that receive regular complaints and tip-offs. The conglomerate always anonymises the data that it collects through its IT systems before publication.

High report volumes
More tip-offs – known as reports – were submitted in 2023 than ever before, numbering nearly 1.9 million at 3,784 companies that employed 75 million people, all of whom potentially have access to the service. These numbers are so colossal that NAVEX's figures are a good guide to worldwide trends in reporting. Nearly 80 per cent of all reports were from North America, with 5 per cent from Europe, 5 per cent from South America, nearly one per cent from Australasia, and nearly 8 per cent from APAC, the Asia-Pacific region.

The industries that produced the most reports were highly-regulated ones such as finance and healthcare, plus industries with many customer-facing employees such as retail and, once again, finance. Most of the reports used in the analysis were from large companies.

The median and the mean 
In 2023, organisations received a median average of 1.57 reports per 100 employees – an increase on last year's number of 1.47. The median is different from the mean average, which was 3.49 per 100. Whistleblowing programmes at firms throughout the world tend to use median figures because, in the words of one delegate, "medians are less affected by outliers than means are." All averages mentioned in this article are median, unless otherwise stated.

More than 22 per cent of firms have received five or more tips per 100 employees, according to the report, and their share of the whole list of firms is on the increase – up from 18 per cent in 2021.

The perils of internal reporting   
External reporting mechanisms exist that are intended to encourage employees at firms to "report out" to regulators, although the firms, if they are wise, ought to make it as easy and safe as possible for them to "report internally" to the company's or group's human resources (HR) department first. There is always, however, the possibility of an unjust internal investigation and/or "retaliation," a common phenomenon in the world of whistleblowing whereby the firm takes its revenge on the employee who complains about wrongdoing within its walls, perhaps blocking his/her future promotion or engineering his/her eventual departure on a trumped-up charge. Retaliation is the enemy of a speak-up culture; whistleblowing experts tend to estimate that it happens with one or two per cent of all reports worldwide; NAVEX's gross figure is 2 per cent.

An efficient and trusted mechanism by which employees can anonymously or confidentially make inquires and allegations of suspected or actual misconduct without fear of retaliation is the hallmark of a well-designed compliance programme. In the real world, most tipsters do not credit their firms with such integrity and therefore report anonymously. Delegates in the webinar referred to tipster-employees as "reporters" or "members of the team who have a concern."

In the UK the Employment Rights Act 1996 (as amended by the Public Interest Disclosure Act 1998) gives every worker the right to take a case to an employment tribunal if he has lost his job because he has blown the whistle.

Anonymity and substantiation  
An average of 56 per cent of all reports received in 2023 were anonymous (although the figure was lower at about 50 per cent at private banks and other financial firms) and the substantiation rate of these reports has stayed flat at an average of 33 per cent since 2020. "Substantiation" occurs when an investigation has shown the disclosure to be valid. By contrast, in those matters where the reporter chose to provide his name, the substantiation rate has increased to 50 per cent in 2023 after remaining at around 47 per cent for several years. Organisations in which telltales feel confident enough to "break cover" without fear of retaliation are likely to benefit mightily from this gradual trend, because their reports are of higher quality. Moreover, delegates noted that research carried out by Professor Kyle Welch at George Washington University has demonstrated that higher rates of internal reporting translate to better business results.

What problems do tipsters reveal?
NAVEX breaks down the issues that tipsters want to broach into six categories.

Accounting, auditing and financial reporting malpractice. Over the three-year period of 2021 to 2023, this has dropped by one-seventh to 4.3 per cent of all reports.
Business integrity, or the lack of it. The subject covers the whole gamut of financial crime – insider dealing, bribery and corruption etc. – along with conflicts of interest, the misuse of confidential or proprietary information, data breaches and anti-competitive practices. This has risen slightly to 19.7 per cent.
HR, diversity and workplace respect. The category dwarfs all others in the whistleblowing world and covers discrimination at work, harassment, rudeness and retaliation itself. This has risen worldwide by nearly one-tenth to 54.5 per cent. Reports of workplace incivility (which include bullying and the abuse of power) continued to increase in number in 2023, representing an average of 18 per cent of the reports that came in, followed by discrimination (12 per cent) and harassment (7.1 per cent).
Environment, Health and Safety. This has dropped by three-tenths to 6.1 per cent since the peak of Covid-19.
Misuse or misappropriation of assets. This has dropped by slightly more than one-tenth to 3.8 per cent.
Other. The figure has remained static at 13.3 per cent.

It is interesting to note that HR, diversity and workplace respect account for well over one-third of reports except in the lowest reporting cohort (i.e. among firms that only received 0-0.24 per cent of a report for every 100 employees), which shows by far the greatest concentration of accounting-related tips.

Line managers in the line of fire  
Jane Norberg, a lawyer in private practice who used to work at the SEC's Office of the Whistleblower, told delegates that it was important for firms to train managers and even board members to realise that they themselves may be the recipients of front-line reports. These often come from simple walk-in visits.

"Many times I did hear from whistleblowers when I was at the SEC that the main reason that they 'reported out' [see above] is because they didn't think that their manager handled the report properly. I heard that quite often. Those ended up being some pretty good tips that whistleblowers did end up getting paid on."

Norberg's mention of payments refers to the sizeable awards that the SEC disburses to whistleblowers who provide it with information about corporate malfeasance that results in settlements or fines of more than $1 million. The highest award was $279 million, paid last year to an unnamed – but now UHNW – informant.

The average time that elapses between an incident and a report is eight days.

Through what channels do the reports come?  
Telephone intake is still very important. NAVEX's figures for the past four years showed that the proportion of telltales who began their complaints on the phone had remained stubbornly high around the 31 per cent mark, with web intake hovering around 48 to 50 per cent and other methods (including face-to-face contact with senior managers) accounting for just under one-quarter. All figures showed little variation over the period.

Keith Thomas, the compliance lead counsel at FedEX, said that the use of the telephone was still popular at his global firm as well.

"Of the reports that came in through just the ‘alert line’ process, still 55 per cent of them came in through the phone and 45 per cent came in through the web, so it's still being used everywhere. We've had to keep in mind that people want to talk to – and know they're being heard by – a human. Also, we operate in 220 countries worldwide and internet access is not the same in some of these countries as it is here. Not everyone has easy access to the internet. But one thing you do often see in these countries is that they have much easier access to a cellphone, so they can call a number, whereas it may be difficult for them to go to the web. Or maybe they can speak it much better than they can type it. There's a whole lot of different factors. The phone's not going away any time soon, at least not for us.

"Almost all of that web [reporting from outside the USA] is driven largely from APAC. I don't know why that is. I don't know whether it's a cultural thing or a trust issue. We have a very difficult time getting employees in APAC to use the phone, but it's OK because they're still reporting, so we don't mind. In Europe it's more of a mix and in Latin America they tend to use the phone over web."

Whistleblowing leading to dismissal    
A whistleblowing case often ends in separation, i.e. the end of an employee's working relationship with a company. NAVEX's figures showed an increase in this phenomenon – from 12.4 per cent in 2021 to 17.5 per cent in 2023. Disciplinary action as an outcome dropped from nearly 36 per cent to nearly 33 per cent and 'no action' hovered around the 14 per cent mark. About 8 per cent of cases throughout the period ended in some training for someone or other; about 3.4 per cent throughout the period ended in 'referrals' (an unexplained term) and 8 per cent, declining from 10 per cent in 2021, resulted in changes to company policy. Smaller organisations of less than 2,500 employees worldwide were far less likely to dismiss people (or otherwise cause their departures) as the result of a whistleblowing episode; only 9.3 per cent of their cases ended in separation. In all other categories, the figure was 16 to 22 per cent. This could be because the smaller a firm is, the more it might depend on the foibles and personality of this-or-that individual who happens to work there.

Regulatory policy in the UK    
Two years ago, the British FCA canvassed a few whistleblowers for their opinions about the ways in which it had dealt with their complaints. Four of them were satisfied and five of them were neither satisfied nor dissatisfied, but a dozen of them were "extremely or somewhat dissatisfied." As a consequence of this modest piece of research, it is talking to the Department for Business and Trade "to support a review of whistleblower legislation in the interests of enhancing the wider whistleblowing system."

In the meantime, it has just announced plans to improve its cross-FCA whistleblowing function. It will give the tipsters who contact it more information than ever before about the uses to which it has put their data and tell them the results when it closes their cases. Last year it promised better training for its whistleblowing team and improvements to the webform on which whistleblowers make their disclosures.

Will publicising investigations at firms embolden whistleblowers? 
The FCA has also decided to "encourage witnesses and whistleblowers to inform our enforcement and supervisory work." Its method of doing this, however, is most controversial. In Consultative Paper 24/2, issued in February, it proposed to publicise its enforcement investigations before they were over. This has caused a furore in the City of London among private banks, advisory firms, fund management firms and other wealth managers, alongside many other financial firms. Chief among their complaints is the contention that a firm is likely to lose business – eventually, perhaps, for no good reason at all – if potential customers are put off by the knowledge that an investigation is in progress.

A bemused Ashley Alder, the FCA's chairman, told the House of Commons Treasury Committee recently that "in truth, I think we weren’t, at the time we put this out, expecting such a stern reaction from the industry."

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