Whistleblowing is very much in the FCA’s spotlight. The regulator is urging people to call time on malpractice and last year it launched a campaign to 'encourage individuals to report wrongdoing' alongside a digital toolkit.
The focus on whistleblowers must be seen in the context of the FCA’s Senior Managers and Certification Regime (SM&CR). This fairly recent development saw material risk takers no longer being directly registered with the FCA but instead becoming 'certified staff' who are monitored by the firm’s Senior Managers. In short, firms have been left to police themselves. The establishment by the FCA of a whistleblowing culture in financial services is essential for SM&CR to work.
To boost this culture, the FCA had already enhanced whistleblowers’ provisions beyond those of the Employment Rights Act 1996 (ERA). The right of anonymity was strengthened and the ability to go direct to the FCA or PRA rather than having first to make an internal disclosure was made clear.
These added protections are set out in the FCA Handbook’s 'Chapter 18'. Each firm must have an independent 'whistleblowers’ champion'; it must implement effective training; and must report to the FCA on each whistleblowing employment tribunal claim that is lost. Individuals do not have to put their head above the parapet when raising concerns and, in addition to the penalties under the ERA, a firm or individual that victimises a whistleblower (or suspected whistleblower) will have their fitness and propriety called into question.
The concept of whistleblowing has also been broadened by the FCA. An individual does not need to demonstrate that they have a reasonable belief that a criminal offence or legal wrong has taken place and that it is in the public interest for them to raise this, as they must do for a 'protected disclosure' under the ERA. They merely need to report a 'concern' about a breach of a firm’s policies or behaviour that harms the firm’s reputation.
That said, it would be dangerous for a firm to think that it can escape sanction under the ERA for retaliating against employees who make statements that it believes only fall within this wider FCA definition. In practice 'concerns' about a firm’s policies are likely to be in a regulatory context, which will probably bring them within the ERA’s scope.
In the case of Riley v Belmont Green Finance UK EAT/033/19/BA, the Employment Appeal Tribunal (EAT) rightly held that a claimant had not identified how a breach of the FCA’s principles amounted to a breach of a legal obligation so as to warrant ERA protection, rather than it being just a breach of guidance.
However, it would be unwise to rely on Riley as a ruling that FCA regulations are not sufficient to be regarded as legal obligations actionable under the ERA. When the judgment is studied, the claimant had, like so many purported whistleblowers, failed to be specific. Rather than set out the exact facts of the breach and how these violated FCA regulations, he just made general complaints. Had Mr Riley been more specific and referred to precise breaches of these regulations, the judgment would almost certainly have been different.
Where a concern does fall within the scope of ERA protection, any resulting dismissal or detriment suffered by the whistleblower will be unlawful. But whistleblowers must also take care. The fact they have raised concerns under either the ERA or FCA regime does not give them carte blanche to behave as they wish. To show that a dismissal was because of their protected disclosure, and so is automatically unfair, a whistleblower must demonstrate that the disclosure was the 'principal reason' for it. This is a logical requirement. Often there will be other factors such as conduct, performance or redundancy around a whistleblower’s dismissal and the tribunal will have to identify the main cause.
Last year, in the case of Kong v Gulf International Bank (UK) Limited UKEAT/0054/21/JOJ 1, we saw how these well-established whistleblowing requirements of the ERA are applied in financial services and how dangerous it is for either party to ignore them.
In Kong, the Head of Financial Audit (HFA) objected to the regulatory validity of a document prepared by the Head of Legal (HL) and, in a heated meeting between the two, questioned HL’s 'professional awareness'. A very upset HL then berated HFA.
The EAT agreed that this was not just because HL’s professional skill had been questioned, but also because HFA blew the whistle about HL’s document. After the meeting, HFA repeated her questioning of HL’s professional awareness in an email. HL made a complaint about HFA to the bank’s senior management and a decision was taken to dismiss HFA. The dismissing managers had read HFA’s email and it was their view of her conduct both towards HL and, previously, towards others that led to the decision to dismiss her. They made their own findings about her conduct. HFA’s whistleblowing, while material, was not their principal reason for her dismissal.
In conclusion, the wider ambit and protection given to whistleblowers by the FCA under Chapter 18 and elsewhere should not give employers a false sense of security. Do not think that a mere ‘concern’ about a firm that the FCA encourages staff to raise will not also class as a belief actionable under the ERA. Equally, employees raising such concerns should not regard themselves as immune to dismissal or sanction on other grounds.
Overall, the culture in financial services, which is so heavily affected by the conduct of all those involved, is a key area of the FCA’s focus. During 2022 and the coming years we will see an increase in whistleblowing in relation to what is now another core area – 'non-financial misconduct'. This covers matters of diversity and inclusion, on which an entire consultation paper was published by the financial regulators last year.
This consultation paper looked closely at a firm’s culture and how an individual is unlikely to be fit and proper if they bully or harass colleagues. In Q3 of 2021, the third most common form of whistleblowing to the FCA involved fitness and propriety and the fourth covered culture. There will be much more to come.