In the UK, various cases have focused attention on the role of financial industry "whistleblowers". This article argues that next year will shine more light on the role of those who draw attention to abuses, or claim to do so.

As shown by a number of sagas in recent years, a difficult issue is how to ensure “whistleblowers” can raise alarms about abuses without suffering dire personal consequences while at the same time protecting organisations and persons from unfounded and vexatious attacks. To take a recent example, those journalists who “leaked” data from Panama and other offshore locations state they are raising the alarm but others will claim they have stolen or illegitimately obtained private information.

Into this difficult terrain come Hannah Laming, partner, and Nicholas Querée, associated, at Peters & Peters Solicitors LLP. The views of the authors are not necessarily shared by the editors of this news service but they are pleased to share these insights and invite readers to respond. Email tom.burroughes@wealthbriefing.com

Recent years have seen a growing recognition by legislators, policymakers, and regulators of the important public interests served by whistleblowers, a process which gathered greater speed after the 2008 financial crisis revealed how ignorant regulators were of some questionable conduct at some of the world’s most systemically important financial institutions.  More recently still, a raft of allegations of sexual and other personal misconduct against senior figures in the media, arts, journalism and business sectors has reinforced the critical importance for businesses to foster an organisational culture which respects the importance of protecting those who speak out when they see something going wrong. 

The UK’s Public Interest Disclosure Act 1998 provides the primary protection for whistleblowers who – in what otherwise would be a breach of confidence, leading to the risk of dismissal – raise concerns about matters of public importance at work. 

For regulated financial services firms, whistleblowers are, at least in theory, subject to even greater protections.  Firms are required to have clear processes in place to ensure that concerns raised internally are kept confidential, and whistleblowers are not subject to retaliation.  Jes Staley, the current chief executive of Barclays plc, is currently under investigation by a host of regulatory agencies including the UK Financial Conduct Authority and the New York Department of Financial Services following allegations that he had sought to unmask the identity of a whistleblower using the bank’s own compliance and investigations team.

Whilst these legislative and regulatory responses are welcome, there is a growing debate over the extent to which protection from reprisals sufficiently incentivises whistleblowers to come forward. This is particularly the case in the context of wrongdoing in financial services, where to blow the whistle may in practice mean that the whistleblower will be giving up substantial earning opportunities in order to serve the public interest.

In the United States, legislators have attempted to address this issue through the introduction of a statutory reward scheme for whistleblowers. As well as making provision for financial penalties against firms that seek reprisals against whistleblowers, the US Dodd-Frank Act provides that where a tip from a whistleblower leads to successful enforcement action, he or she will be entitled to between 20 and 30 percent of any financial penalty ultimately imposed as a reward.  In practice, this can result in very significant sums. The largest figure awarded under Dodd-Frank so far is $30million.

The US Securities and Exchange Commission (the lead Federal financial services conduct regulator) has emphasised the “transformative” effect of offering monetary awards (a “game changer”, in the words of Mary Jo White, the former SEC Chair).  The SEC’s recent November 2017 report to Congress shows that the number of tips received by the SEC has grown exponentially since the Dodd-Frank reforms, encouraging disclosures from individuals across the US, and internationally - particularly Canada, Australia, and the UK (in fact, one of the largest awards to date was made to an individual outside the US). 

The fact that the SEC has made provision for in excess of $200 million for awards in its next financial year is some indication of a program in rude health.

Despite this evidence, in the UK the FCA and the Prudential Regulation Authority have declined to follow suit. A 2014 study suggested that the evidence base to support the contention that monetary awards led to better enforcement outcomes did not exist. Whether that conclusion would survive comparison with the recent experience of the SEC remains in doubt.  What emerges strongly from the FCA/PRA report is a perceived societal distaste to payments to whistleblowers, an arguably poor basis on which to develop policy responses to financial wrongdoing by companies.

A recent Australian proposal seeks a middle way. The Joint Parliamentary Committee on Corporations and Financial Services has proposed a scheme whereby payments would ultimately be sanctioned by a court, legitimising the awards in the eyes of the wider public whilst at the same time offering financial incentives to induce those who would otherwise stay silent to come forward. 

Whether those proposals find their way into Australian law remains to be seen, but they arguably represent a neat way in which to resolve competing public interests.  Lord Cromwell, co-chair of the All-Party Parliamentary Group on Fair Business Banking has recently expressed some sympathy for payments to whistleblowers; his committee is to investigate the subject and will no doubt will be watching the progress of the Australian proposals with interest.  For the UK, any similar legislative response would require a change of heart on the part of the regulators, and so is not anticipated for some time.

Where does that then leave whistleblowing protection for 2018? Much may depend on the reaction not only to Jes Staley’s case, but also to how society responds to the more widely publicised allegations of improper behaviour by powerful men in the workplace. That debate may well inform how organisations – commercial businesses or otherwise – can be encouraged to create safe spaces for individuals to come forward, be that through stronger legislative protections, financial incentives, or better governance structures.