Imagine a few scenarios. Perhaps your boss has instructed one of your colleagues to transact business which he knows that the individual is not approved to do by the FSA. Perhaps your boss has been sexually harassing a client or colleague or taking clients without authorisation. What do you do? Keep you head down? Think again
On May 1 this year, the FSA issued guidelines entitled, Whistleblowing, The FSA and the Financial Services Industry, which introduces the industry to the Public Interest Disclosure Act 1998 (Pida).
Pida was introduced as a framework to enable employees to make disclosures which are in the public interest by giving protection from victimisation by the employer.
The FSA's aim in publishing this guidance is to encourage firms to introduce internal whistleblowing policies, with the ultimate aim of ensuring that senior management are not the last to know about a potential problem.
This enables employers to achieve an effective risk management system at little cost. The FSA has also published an information sheet for employees and has set up a whistleblowing hotline, offering guidance on what to do where they are concerned about wrongdoing at work.
The guidance makes it clear that the FSA would view as a serious matter any evidence that a firm had acted to the detriment of a worker because he had blown the whistle. In fact, the FSA states that such evidence could call into question the fitness and propriety of the firm or relevant member of staff and could therefore affect the firm's continuing approval under the regulatory framework or, for an approved person, his status as such.
Provided therefore that the disclosure is made in good faith and the individual has reasonable suspicion that the information and allegations are true, then the whistleblower has the comfort of knowing that the FSA would look seriously at any allegation of resulting detrimental treatment.
For many firms, the wrath of the FSA is likely to act as a far stronger deterrent than an employment tribunal.
What about individuals?
Since November 30, 2001, any individual in the financial services sector, performing a “controlled function”, needs to obtain approval from the FSA before they are permitted to perform that function.
Such approval expires on the termination of employment and needs to be applied for again by a new employer.
Approval is subject to the FSA being satisfied that an individual is a fit and proper person to perform their function. Once approval is obtained, the individual must continue to observe the standards of conduct expected by the FSA.
In determining whether a person is fit and proper, one of the three considerations is “honesty, integrity and reputation”. Matters to which the FSA will have regard in determining this consideration include whether or not a person “demonstrates a readiness and willingness to comply with the requirements and standards of the regulatory system, and with other legal, regulatory and professional requirements and standards”.
It is possible that in failing to blow the whistle, at least internally, an individual is risking their approved status being removed, or refused, on subsequent applications.
Turning to the FSA's powers to discipline an approved person, a person is guilty of misconduct under the new legislation if he has failed to comply with a statement of principle or if he has knowingly been concerned in such a breach by any relevant individual.
Therefore, if an approved person fails to blow the whistle on a colleague, who they are aware is acting in breach of a regulatory requirement, then the FSA may well argue that they are knowingly concerned with that breach.
While an individual's culpability is likely to depend on the extent of their knowledge, there is a risk of resulting disciplinary action, where an individual effectively “turns a blind eye” to such breaches, particularly in the case of more senior employees.
Such disciplinary action could result in a fine, publication of a statement of misconduct or in the issue of a prohibition order, preventing an individual from performing certain of their func- tions, all of which would damage an individual's career prospects.
The new regime places far greater obligations on those performing controlled functions within the industry to take responsibility for what they and their colleagues carry out on a day-to-day basis, giving the FSA the teeth to enforce that responsibility.
The advice must therefore be that any approved person thinking of ignoring wrongdoing in the workplace should think again.
Julie Morris is an employment solicitor and member of the FSA Unit at Russell Jones and Walker solicitors.