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MPs back stronger protections for UK whistleblowers

Out-Law News | 15 May 2013 | 1:41 pm | 3 min. read

MPs back the introduction in the UK of US-style whistleblowing rules, including greater protection and the introduction of financial incentives to encourage employees who witness wrongdoing to come forward.

Financial News (registration required) said that the issue had most recently arisen in relation to the financial services industry. Earlier this year Martin Wheatley, head of the Financial Conduct Authority (FCA), had said that the new regulator was "absolutely interested" in exploring whether to offer cash incentives to whistleblowers. However, MPs on the Treasury Select Committee have told the publication that the FCA does not currently do enough to support employees who come forward with claims of regulatory breaches.

"We were rather surprised at the attitude of the regulator, not doing everything that they can to give a potential whistleblower the trust and confidence that if they come forward they won't suffer as a result of their willingness to spill the beans," Andy Love, a Labour MP and member of the Committee, told Financial News.

The FCA does not provide assurances on anonymity to would-be whistleblowers, and encourages employees to raise their concerns internally before contacting regulators.

The term 'whistleblowing' refers to an employee telling a prescribed person or a person 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 the company, known as 'internal' whistleblowing. They may also make their allegations to external regulators, law enforcement or the media, the last of these in more limited circumstances.

Legal protection for whistleblowers was introduced in the UK in 1999 as an amendment to the Employment Rights Act. The rules protect employees who make disclosures of certain types of information, including evidence of illegal activity or damage to the environment, from retribution by their employers such as dismissal or being passed over for promotion. In addition, where an employee is dismissed for making a 'protected' disclosure, this dismissal is automatically unfair.

Employment law expert Helen Farr of Pinsent Masons, the law firm behind Out-Law.com, said that some cases in the US had resulted in whistleblowers being awarded "very significant sums of money".

"The Dodd-Frank regime has resulted in successful complainants being awarded a percentage of the fine ultimately paid by the company," she said. "In some cases this has run into millions of dollars. Any UK proposal is likely to cap compensation - even so, if the proposal is taken forward it is likely to be an incentive for individuals to come forward with their concerns."

"Despite the financial incentive, if enacted, the position remains that employees are still expected to make their complaints to their employer and although all employers should take steps to preserve their anonymity, this cannot always be guaranteed. It will be interesting to see if the Treasury Select Committee presses for any changes to deal with these concerns," she said.

Earlier this year, Conservative MP Julian Smith wrote to the Parliamentary Commission on Banking Standards (PCBS) to lobby for the introduction of financial incentives for whistleblowers as part of the Banking Reform Bill, which is currently before Parliament. Speaking to Financial News, Smith said that he planned to raise the issue in the House of Commons within the next six months.

Writing on his website in February, Smith said that whistleblowers working for UK-based financial services firms were more likely to take their concerns to the US authorities due to the incentive system in place there.

"It is my understanding that almost 30% of foreign whistleblowing tips to the Securities and Exchange Commission come from within the UK and the resultant fines are then a net gain to the US treasury when in fact they could have benefited the UK taxpayer," he said. "Incentive-based whistleblowing is an important part of the regulatory jigsaw and must surely be given serious consideration by the PCBS."

Employment law expert Helen Farr said that calls from MPs to introduce financial incentives reflected the "increasing importance" that the Government was placing on "ensuring that allegations made by whistleblowers are treated seriously".

"The Government has recently amended the tribunal rules such that when a whistleblowing complaint is made to an employment tribunal, the tribunal can send details of the complaint to the relevant regulator," she said. "Once made, the relevant regulator can then examine the complaint as part of their normal investigatory process."

"The law introducing protection for whistleblowers was enacted to make sure that financial and physical disasters like the Maxwell scandal and the Zeebrugge ferry sinking should not happen again. It seems appropriate that the Government should take steps now, in light of recent financial scandals, to ensure that the legislation and the protection afforded to those who are courageous enough to 'blow the whistle' remains fit for purpose," she said.