The United Kingdom will not, for the moment, be adopting US-style 'rewards' or incentives for whistleblowers following two Regulators' response to recommendations of the Parliamentary Committee on Banking Standards (PCBS) about whistleblowing.
Whilst the door is not closed to this possibility in respect of some other regulator or prosecuting authority in the UK, it would take a very brave institution to ignore the research and views of the Financial Conduct Authority (FCA) and the Bank of England Prudential Regulation Authority (PRA). It also remains to be seen whether the Government would fund any such arrangement.
The most recent reward scheme for whistleblowers in the US was introduced under the Dodd-Frank Act. It provides for whistleblowers to be rewarded with a proportion of any fine levied on a company as a result of the information they have provided.
The PCBS received some evidence in its review process that argued strongly for a similar scheme to be set up in the UK.
The FSA (as the FCA was at the time), and others giving evidence, had some serious reservations about the use of financial incentives in this context.
They were concerned about 'moral hazard', the public's perception of already highly-paid individuals receiving a 'reward' for doing what was arguably their duty, and the risk that financial incentives could encourage whistleblowers to delay reporting wrongdoing in order to maximise their reward.
The PCBS noted the regulator's disquiet about the prospect of financially incentivising whistleblowing.
It asked the FCA to research the impact of financial incentives in the US in "encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency in financial markets."
The FCA and PRA agreed that strong measures are needed "to encourage and protect whistleblowers, who can play an important role in helping to protect the safety and soundness of firms and to prevent and detect wrongdoing" but concluded from their research into the use of financial incentives by US regulators that:
incentives in the US benefit only the small number whose information leads to successful enforcement action where fines are paid - they provide nothing for the vast majority of whistleblowers
there is, as yet, no empirical evidence that incentives increase the number or quality of disclosures to regulators
there is an associated complex and costly governance structure
such incentives could undermine the introduction and maintenance by firms of effective internal whistleblowing mechanisms.
The FCA and PRA want to see internal whistleblowing mechanisms in place and want to support them.
They embraced the PCBS's recommendations that senior management in firms should have responsibility and personal accountability for ensuring there are effective whistleblowing schemes in their businesses, and for providing protection for whistleblowers.
To support firms and aid transparency, the FCA and PRA will publish reports on the whistleblowing disclosures they receive and how they handle them.
They hope this will increase whistleblowers' confidence in reporting concerns to the regulators when they feel they cannot report internally, or when they believe an internal report has been ignored.
This article was written by Rhys Novak.
For more information please contact Rhys on +44 (0)20 7427 6563 or firstname.lastname@example.org