Should whistleblowers be incentivised with monetary rewards? The UK Government challenged its regulator of financial services to seriously consider introducing them here. The Financial Conduct Authority (FCA) has recently published its response and not surprisingly, it has come down firmly against doing do. Instead, the FCA is adopting an alternative strategy which, if rolled out to its full effect, could prove highly illuminating.
The FCA has built its case against financial incentives for whistleblowers on a range of arguments, the most convincing of which are:
- “Incentives in the US benefit only the small number whose information leads directly to successful enforcement action resulting in the imposition of fines (from which the incentives are paid). They provide nothing for the vast majority of whistleblowers.”
- “Rewarding whistleblowers for performing what is arguably their regulatory duty would be difficult to reconcile with the requirements that firms and Approved Persons deal with their regulators in an open and cooperative way, and with the requirement that firms should conduct their business with integrity.”
So what does the FCA plan to do instead? It has a three stage strategy: firstly, it will publish an annual report later this year, looking at the disclosures it receives and the action it has taken on them. The idea is to show that they’re serious about whistleblowing and so encourage individuals to be more confident in speaking to them.
Secondly, it has increased its whistleblowing team and introduced new systems to track the action it is taking on the disclosures it receives. They will then be ‘slicing and dicing’ all of this management information , to “identify the sectors of the industry from which it receives most and fewest reports, and will analyse the reasons for disparities.” And their database of whistleblowing reports is growing rapidly: the last three years have seen annual increases in disclosures of 55%, 42% and 30% respectively.
The third and most interesting part of the FCA’s whistleblowing strategy will involve an “outreach programme aimed at raising awareness among potential whistleblowers in those sectors” showing reporting disparities. The FCA talk about building on “existing forums for meeting whistleblowers and normal communications tools including the new annual report on whistleblowing.” I suspect however that their outreach will be public and to the point, not least because the FCA has to demonstrate that it is rebuilding its credibility around whistleblowing to the UK Parliament.
Such sectoral ‘naming and shaming’ could become progressively more personal as well. Changes coming soon to the Approved Persons regime will see named individuals taking personal responsibility for their firm’s whistleblowing arrangements. If you’re such a person at a top three firm in your segment of the financial services market, then a poor performance on whistleblowing could make you very popular with a lot of journalists.
There is of course one big, obvious message coming out of the FCA’s proposals: if we can collect, analyse and act on whistleblowing reports, then so can you.
For a quick overview of where to start, read this guide I wrote for the Chartered Insurance Institute this summer, for directors with responsibility for their firm’s whistleblowing arrangements. And if you want to understand which whistleblowing reports are the most important to look out for, read my free ebook on assessing ethical risks, available for download via the image link below.