Whistleblowing tips reported to the Financial Conduct Authority (the “FCA”), one of the UK bodies with responsibility for regulating the financial services industry, have increased 35 per cent in the past 12 months according to information received by Kroll.  Kroll found that between November 2012 and October 2013, the FCA received 5,150 whistleblowing reports to its helpline compared to 3,813 in the same period in the previous year.

This increase may well reflect a growing willingness of workers to report wrongdoing rather than an increase in underlying wrongdoing, especially given the increasing prominence given to whistleblowing from a variety of sources, such as recent changes to UK whistleblowing legislation and the prominence that regulatory bodies such as the FCA have given to whistleblowing and effective whistleblowing procedures and practices.

However, notwithstanding this this marked increase in tips, UK regulatory and governmental bodies consider more still needs to be done encourage whistleblowing.  In particular, unlike the U.S., in the UK, there are no provisions that provide individuals with financial incentives for blowing the whistle.  The issue of providing financial incentives for whistleblowers, especially within the financial services industry, is currently the subject of debate in a number of forums.

The UK Banking Commission’s report of June 2013 on “Changing Banking for Good” the Commission called on the FCA to undertake research into the impact of financial incentives in the U.S. in “encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency in financial markets”. The FCA, in its October 2013 response to the UK Parliamentary Commission on Banking Standards, established following the LIBOR rate-rigging scandal, expressed non-specific “concerns over the impact of incentivising whistleblowers financially” and indicated it would conduct further research on this, working with the Prudential Regulation Authority (another UK agency with responsibility for regulating the financial services sector).  Their conclusions are expected later this year.

Similarly, in the Serious and Organized Crime strategy report published in October 2013, the UK Government said that the Department for Business, Innovation and Skills, the Ministry of Justice and the Home Office will “consider the case for incentivising whistleblowing in cases of fraud, bribery and corruption”.   The Department for Business, Innovation and Skills is therefore currently examining whether the UK’s whistleblowing framework is operating effectively in today’s labor market, including the issue of whether financial incentives would be appropriate in the regulatory framework.

However, in the one recent review to reach a clear conclusion on this topic, the Whistleblowing Commission, after considering this issue and extensive consultation, decided that it would be inappropriate to offer financial incentives to whistleblowers, notwithstanding their acceptance that a reward system “may well incentivize those who would not normally speak out”.  The reasons for their conclusion were that a reward system would be:

“a)   inconsistent with the culture and philosophy of the UK

b)   undermines the moral stance of a genuine whistleblower

c)   could lead to false or delayed reporting

d)   could undermine credibility of witnesses in future criminal or civil proceedings

 e)   could result in the negative portrayal of whistleblowers

f)     would be inconsistent with current compensatory regime in the UK.”

However, this is not the end of the issue.  The Whistleblowing Commission’s findings are still to be considered by the UK Government.  Moreover, as noted above, the final views of both the FCA and the Department for Business, Innovation and Skill on implementing a UK version of Dodd-Frank bounty provisions are still awaited.  As such, although UK still has no plans to implement a regime of offering financial incentives to whistleblowers, such a possibility cannot be ruled out.  This is especially so if, contrary to the conclusions of the Whistleblowing Commission, the Government determines that moral and ethical motivations for blowing the whistle, as noble as they may be, need to encouraged by financial reward.

This focus on encouraging whistleblowing and the rise in tips shows the imperative of implementing and adhering to clear and robust policies and practices about whistleblowing in the UK.   Even with the clear evidence of the significant increase in the number of tips, encouraging more people to blow the whistle remains a high priority for a broad coalition of regulatory and governmental bodies: it is likely to stay on their agenda, regardless of whether the UK ultimately decides to encourage more tips through introducing a version of Dodd-Frank bounty provisions.

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Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.