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Rise in financial services whistleblowing could result in more prosecutions, expert says

An 38% rise in the number of workers in the financial services sector 'blowing the whistle' on white collar crime could lead to an increase in prosecutions in 2014, an expert has said.

Figures obtained by Pinsent Masons, the law firm behind Out-Law.com, showed that whistleblowing reports had increased from an average of 338 a month to 467 a month since the Financial Conduct Authority (FCA) took over as financial services regulator on 1 April 2013. However financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that this did not necessarily mean that here has been an increase in wrongdoing by firms.

"The recent rise in whistleblowing reports is likely to be the result of the combination of increased focus on compliance and the tightening of controls following criticism from the financial regulator," he said.

"People working in FCA-regulated firms are becoming increasingly aware of their reporting obligations. The threat of multi-million pound fines and a new push toward personal accountability means that staff at authorised firms, their suppliers and clients are all now very aware of their compliance obligations. The UK already has some of the highest whistleblowing rates worldwide, and numbers are set to increase even further if plans to financially incentivise whistleblowers who report crimes are implemented," he said.

Ruck's comments were reflected in the nature of the reports received by the regulator that were deemed serious enough to be pursued. Of the 1,118 reports received by the FCA and its predecessor, the Financial Services Authority (FSA), since March 2012, roughly 60% related to general regulatory concerns. Only 23 reports concerning insider trading, 21 of market manipulation, 25 of money laundering and four reports relating to potential misappropriation of client money were pursued over the same period, according to the figures.

In its 'Serious and Organised Crime Strategy' report, published in October 2013, the UK Government said that the Department of Business, Innovation and Skills, the Ministry of Justice and the Home Office will "consider the case for incentivising whistle blowing, including the provision of financial incentives to support whistle blowing in cases of fraud, bribery and corruption." This could include straightforward incentive payments or the possible adoption of an equivalent to the US False Claims Act, which would entitle whistleblowers to a share of any penalties imposed on an organisation that is found to be defrauding the Government.

The FCA is also expected to put forward its own proposals for incentivising whistleblowers, with the Independent reporting that these could be published for consultation "within weeks". In March 2013, FCA head Martin Wheatley said that he was "absolutely interested" in exploring whether cash incentives could be offered to whistleblowers. However, he was later criticised by MPs on the Treasury Committee, who said that it was more important that the regulator provide assurances on anonymity to encourage whistleblowers to come forward.

Ruck said that if incentivised whistle blowing is introduced in the UK and whistleblowers who report financial crime are rewarded with a cut of the money they gain back for the taxman,then "no doubt this will lead to a surge of white-collar informants seeking big payouts".

Editor's note 31/01/14: This story was updated to reflect corrected figures supplied by the FCA.

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