Does your business operate in financial markets outside the UK? If so, the chances of you having to handle an investigation from a foreign regulator are increasing, particularly the US Securities and Exchange Commission, so be prepared.
This is in the news following publication of the 2020 Annual Report to Congress on the Whistleblower Program showing the UK to be the second largest source of tip-offs globally. That's no surprise given that London remains an important global financial centre and many large firms operating in the city are listed on US exchanges, but nonetheless the number of cases has been rising steeply, driven by Covid-19 and a surge in cases of fraud and corruption across the world. One reason put forward to explain the rise is that it’s a consequence of the UK Senior Managers Regime which is specifically aimed at increasing disclosure of wrongdoing. Rule SC4 requires relevant senior managers to “disclose appropriately any information of which the FCA or PRA would reasonably expect notice”. This means, in some cases, that managers must make a direct disclosure to the regulator without waiting for any request or enquiry. What’s more, FCA guidance makes clear that to ‘disclose appropriately’ a manager may be required to disclose wrongdoing to foreign regulators. So that’s one reason. But there is another less subtle reason. To explain, on the line, litigator Andrew Herring:
Andrew Herring: "So Joe, the point is, quite an interesting development recently, particularly in connection with the US, is the number of reports to US regulators that they receive from people based outside of the US and the reason for that is that if you're an employee of, for example, a US Bank, but working in London, you can blow the whistle to the US regulators just as much as you can to the UK regulators or your employer and that is particularly attractive for employees of these US-regulated companies because there is a much stronger regime of incentivising whistleblowers in the US whereas we don't really have that culture in the UK at all, apart from a few isolated examples. So in the US it is quite, dare I say it, a big business for people to be representing whistleblowers in connection with environmental damage, with tax offences and the whole gamut of wrongdoing in regulated areas and so we are starting to see some US law firms setting up, for example in London, to capture employees who may wish to make whistleblowing reports to US regulators and make sure that they're protected properly under the US legislation.”
Joe Glavina: “So what’s your message to HR listening to this Andrew?”
Andrew Herring: “Well, I think the message is just be aware that if you are operating in markets outside of the UK it is possible that you may face investigations by regulators outside of the UK and you have to be prepared to deal with those and to ensure that you manage your employees in compliance with whatever sort of foreign legal rules might apply to them if you're operating in a regulated sector.”
Finally, a word on those awards by the US regulator. The Commission pays out where the whistleblower provides high-quality original information that leads to enforcement action in which over $1m in sanctions is ordered. Awards range from 10% to 30% of the money collected by the US government. In stark contrast, with a few exceptions, UK regulators pay nothing at all. So whilst UK law does offer protection to whistleblowers it is geared to compensation through employment tribunals rather than bounty payments from the regulators. In the US some of those bounty payments are enormous and they are set out on the Commission’s website if you’re interested.