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FCA must address whistleblowing concerns before looking to offer incentives, says expert

Out-Law News | 05 Mar 2013 | 12:08 pm | 1 min. read

The new Financial Conduct Authority (FCA) should seek to better communicate the way in which whistleblowers can raise concerns about practices in the financial services industry before it looks to offer incentives to individuals who flag their concerns, an expert has said.

Earlier this week Martin Wheatley said that the FCA is "absolutely interested" in exploring whether to offer cash incentives to whistleblowers. Wheatley is due to head up the FCA when it assumes responsibility for some of the functions of existing regulator the Financial Services Authority (FSA) in April.

The term 'whistleblowing' refers to an employee telling someone in authority at their employer about alleged dishonest or illegal activities occurring within an organisation or company. Whistleblowers may make their allegations to other parties within their company, known as 'internal' whistleblowing, or to external regulators, law enforcement or to the media in limited circumstances.

Under the Public Interest Disclosure Act individuals who engage in whistleblowing are generally protected from being discriminated against providing that their disclosure to the appropriate authorities is made in good faith.

Wheatley told the Parliamentary Commission on Banking Standards there were "pros and cons" to the "incentive structure" that is in place in the US and the UK system where there is merely a "moral incentive to do the right thing", according to a report by Money Marketing

However, former FSA enforcement agent and banking law expert Tim Dolan of Pinsent Masons, the law firm behind Out-Law.com, said that employees at authorised firms often don't understand how to raise concerns either with internal compliance officers or with the FSA. He said the FCA should make information about whistleblowing more prominent than the FSA currently does and that it should contain clearer details of the procedures and protections in place. These should be higher up the FCA's list of priorities than looking in more depth at whether to incentivise whistleblowing, Dolan said.

"While it may make sense to offer financial incentives, a more immediate priority for the new Financial Conduct Authority should be helping individuals to understand how they can whistle blow concerns in good faith to the FCA, and how they are protected under law," Dolan said. "The current regime is not clear enough."

"It is important that the FSA receive timely and clear information from individuals at FSA regulated firms when there are problems and that those individuals are protected when they make a disclosure to the regulator in good faith. It is also very important that individuals feel that they can turn to the regulator and 'blow the whistle' when there is a problem," he added.

"Too often, despite the FSA’s guidance about how its whistle-blowing regime works, individuals at regulated firms are confused about how they should actually contact the FSA and are not comfortable that they will ultimately be protected," Dolan said.