The recent Financial Conduct Authority prosecution of Barclays boss, Jes Staley, was the first case to have been successfully brought by the FCA under the Senior Managers and Certification Regime.
The FCA took action against the Barclays boss for attempting to unmask a whistleblower and he was ordered to pay £1.1m out of his own pocket.
There can be no doubt that Mr Staley acted inappropriately and irresponsibly in trying to hunt down a whistleblower who had raised concerns about the recruitment of the head of the bank’s financial institutions group in New York in 2016. He even used the bank’s internal security team to do so.
It showed a lack of understanding at the highest level of the purpose of whistleblowing procedures which allow employees to raise concerns anonymously and without the fear of retaliation. Clearly, trying to unearth the identity of someone who has taken steps to bring whistleblowing concerns to light goes against the very foundations of the culture of silence that whistleblowing is intended to target.
However, the case showed that the FCA is now prepared to take action even if it is against one of the most senior people in the City. This is in line with the FCA and Prudential Regulation Authority’s recent drive to put a greater emphasis on individual accountability under the SM&CR and to encourage a culture where individuals working in the financial services industry feel comfortable raising concerns and challenging poor practice and behaviour.
It is also timely given the statement by the FCA’s counsel in a recent Upper Tribunal case (Arif Hussein and the FCA) concerning individual enforcement proceedings brought against a relatively junior trader for Libor manipulation.
In response to questions about why the FCA was not pursuing any more senior people, the FCA’s counsel stated that: “…as regards more senior people, one has to remember in relation to UBS that not everybody is in the jurisdiction and when one looks at the Final Notice, the documentation that is referred to as fingering senior people is not extensive. As is the way of these things, the senior people somehow manage to keep their fingerprints off the relevant documents sometimes.”
This seems to mean that, historically, the FCA has preferred to focus on the easier targets, even if this potentially means that more senior people driving poor behaviours and culture are not held accountable. This will not be an acceptable approach by the FCA once the SM&CR has been rolled out across the sector next year.
In summary, whistleblowing rules currently require a firm to:
- Appoint a senior manager as its whistleblowers champion.
- Put in place internal whistleblowing arrangements able to handle all types of disclosure from all types of person.
- Put text in settlement agreements explaining that workers have the legal right to blow the whistle.
- Tell UK-based employees about the FCA and PRA whistleblowing services and require its appointed representatives and tied agents to do the same.
- Present a report on whistleblowing to the board at least annually.
- Inform the FCA if it loses an employment tribunal with a whistleblower.
The new whistleblowing rules came into effect in 2017 and are only binding on a limited number of FCA and PRA regulated entities.
For most firms, the rules have the status of non-binding guidance with which firms can voluntarily comply.
Senior managers are a bit jumpy with their extra responsibility and whistleblowing claims have risen
With the extension of the SM&CR to all regulated firms by mid-to-late 2019, it seems only a matter of time before the whistleblowing regime is implemented more widely, particularly given the direct link between a firm’s approach to handling whistleblowers and the fitness and propriety of the firm and any relevant employees.
However, there may be challenges along the way. The SM&CR is designed to make senior individuals more accountable for decisions taken “on their watch”.
In practice though, this increased responsibility has made senior managers a bit jumpy and firms already covered by the SM&CR have seen a rise in whistleblowing claims as a result.
It’s not to say that the concerns raised are not genuine, but there may be a risk that blowing the whistle becomes a tactical tool designed to provide an individual with a degree of protection to avoid their own responsibility, and ultimately liability, further down the line.
As such, regulated firms may have a difficult time getting the balance right in recognising the importance of whistleblowing in encouraging a culture of openness against managing the risk of individuals using whistleblowing as a way to dodge their own culpability.
Claire Holland is managing associate at Foot Anstey