This article examines the whistleblowing rules of the UK regulator, an area that takes on particular urgency given the focus on alleged wrongdoings in financial institutions.

The role of "whistleblowers" in banking and finance is a difficult and controversial one. Where does one draw the line between someone calling out bad deeds and a troublemaker trying to do down a firm? For example, several of those folk who took data from Swiss banks, claiming to show that these firms sheltered dirty money, were also accused of being motivated by personal gain. Even Edward Snowden, who shocked the global intelligence community by his leaks at the expense of the US government, is seen as a hero to some and a villain by others. And then there are questions of how even a legitimate whistleblower can be protected from adverse consequences. In today's highly regulated world, these are not straightforward matters.

To discuss recent guidance from the UK's Financial Conduct Authority, this publication welcomes David Ashmore, partner at Reed Smith, the law firm. The editors are pleased to share these insights; they do not necessarily agree of course with all views of outside contributors. To jump into the debate, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The FCA is continuing to enhance its requirements for whistleblowing protection within financial services firms. The broad scope of UK whistleblowing laws, and the increasing trend of high net worth employees being added as defendants to whistleblowing litigation, means that the risk and liability for breaching whistleblowing laws has never been higher. Wealth managers and advisors are playing with fire unless they understand the nature, and specifics, of FCA requirements.

Firstly, the FCA's whistleblowing rules require firms to implement effective arrangements to ensure that any concerns are handled appropriately and confidentially. In effect, the FCA has now outlined what whistleblowing compliance means in practice. This includes a requirement to appoint a whistleblowers’ champion to ensure that there is senior management oversight over the integrity, independence and effectiveness of the firm’s arrangements. Firms are also obligated to implement arrangements designed to protect whistleblowers from victimisation, and to oversee the preparation of an annual report to the firm’s governing body. As a minimum, firms must have:

-- Up-to-date and accessible whistleblowing procedures;

-- Clear guidance for employees on how to raise a whistleblowing concern. It must be clear that raising a concern with the FCA/PRA is not conditional on an initial report being made using the firm’s internal arrangements;

-- An investigation process that provides investigators with guidance on how to protect a whistleblower’s confidentiality and how to assess the seriousness of whistleblowing reports; and

-- Clear guidance on preventing retaliation against those who blow the whistle.

The FCA has highlighted the following as examples of good whistleblowing practice:

-- Non-executive directors being appointed as whistleblowers’ champions, providing independent oversight and accountability and helping to raise the profile of whistleblowing;

-- Whistleblowing training being provided separately to managers and investigators, and to senior leadership teams involved in the assessment of cases;

-- Monitoring the employment records of whistleblowers for 12-18 months following a report, to identify any potential whistleblowing detriment (e.g. performance appraisals or bonus decisions);

-- Providing feedback to the whistleblower about the action being taken as a result of the report being made (although the FCA recognises that there may be limits on the information that can be provided).

Furthermore, the firm is obligated to inform the FCA should it lose a whistleblowing claim at the Employment Tribunal. This new reporting obligation adds a regulatory dimension to litigation which is easy to bring and complex, difficult and expensive to defend. Anyone can bring a whistleblowing claim from day one of their employment and there is no requirement for a claim to be raised in good faith. 

Whistleblowing claims can also be issued in the Employment Tribunal for free, using an online form.

A unique feature of whistleblowing claims is the ability to file unfair dismissal or detriment claims against not just the employer, but also personally against individual employees involved in the alleged retaliation. Further, there is unlimited personal liability for individuals found to have retaliated against whistleblowers. There is an increasing trend for employee litigants to add high net worth individuals to litigation in order to maximise the pressure of litigation on the firm and senior management.

This raises serious practical concerns for an employer defending whistleblowing litigation, including the level of support (if any) to offer to employees who are co-defendants to a whistleblowing claim. Even where a claim is successfully defended there is little prospect under current rules of being able to recover legal fees incurred defending baseless allegations.

The new reporting obligation where claims are not successfully defended further raises the stakes of whistleblowing litigation and will inevitably inform the analysis of risk and cost that sits behind decisions on whether to fight or settle litigation. For wealth managers to avoid this sticky situation, following the FCA’s best practice suggestions will become as much a necessity as the requirements for compliance. The professional, and personal, cost of a bad-faith claim is not to be underestimated.

David Ashmore is a whistleblowing expert and employment Partner at Reed Smith LLP.