Amanda Khatri
Editorial Manager
Whistleblowers could be rewarded up to £250,000 for highlighting wrongdoing inside banks under plans proposed by the Labour party.
The opposition party are heavy favourites in the forthcoming general election, and has pledged rewards for exposing misconduct, stolen assets, sanctions breaches, and misappropriated funds.
Similar proposals were floated two years ago as the government attempted an overhaul of its corporate crime laws, but references to a whistleblower reward programme were dropped during the legislative process.
Whistleblowing can play a pivotal role in the fight against corruption in financial services, with high-profile cases often prompting more employees to come forward.
Whilst many jurisdictions including the UK have legal protections in place, individuals who come forward to report wrongdoing in banking are not guaranteed protection and are not financially rewarded.
There are other risks involved, as evidenced in 2018 when former Barclays chief executive Jes Staley was ordered to pay more than £1.1m as punishment for attempting to unmask a whistleblower.
Staley was fined £642,430 by UK regulators, and the bank held back some of his bonus after the matter. The bank also had to report to regulators on improvements to its whistleblowing processes.
The issue of whether to financially incentivise whistleblowing in the UK financial services sector has been a long and thorny debate, with the Financial Conduct Authority (FCA) itself advising against the introduction of a ‘bounty’ that may have no bearing on the number or quality of disclosures.
Long-held British cultural norms that people should “do the right thing” as part of public duty still hold sway within finance and other industries, in stark contrast to the implementation of whistleblower reward schemes in the US.
“Any future policy in this area must consider the balance between moral motivations and the substantial personal and professional costs paid by financial crime whistleblowers, who risk being blacklisted from lucrative careers for life,” said Helen Wood, head of public policy at Cifas, the cross-sector fraud-sharing database.
Why does the US pay whistleblowers?
In the US, financial regulators can award individuals up to 30% of fines if they provide evidence that leads to an enforcement action. Of the nearly $72bn in sanctions levied by the US Department of Justice, some 70% came from whistleblowing.
Last year, the US Securities and Exchange Commission (SEC) awarded nearly $279m to an individual whose information led to the successful enforcement of SEC and related actions.
It was the highest ever payout from the agency, more than doubling the previous record of $114m issued in October 2020.
US legislators frame the act of whistleblowing as an act that itself comes with a high cost; it is not viewed as a bounty when an individual has burned their career and lost all future earnings in what may be a well-paid position.
“The lack of any financial incentives, put together with the considerable financial, career and reputational risks of [blowing the whistle], has encouraged a
culture of keeping your head down,” said Harvey Knight, a partner at law firm Withers.
The head of the UK Serious Fraud Office (SFO), Nick Ephgrave, believes the UK should take a leaf out of the US’ book and reward whistleblowers to compensate them for the risk of coming forward and to speed up investigations.
His agency has been criticised for an inability to close cases, and for the length of time it has taken to prosecute complex fraud.
In his first speech since being appointed SFO director, Ephgrave said speeding up cases required “focus on the intelligence and evidence”.
“Our cases, which maybe take five to six years, how much quicker would they be if we could access what we might call ‘smoking gun’ evidence from an insider who was actually there when it happened, saw what happened…that has the documents that prove the case? How much quicker would it be if we could access that or how might we do that?”
“I think we should pay whistleblowers,” Ephgrave said. “If you look at the example in America, I know not everything in America is entirely transferable here, but the American system allows that, and I think something like 86% of the $2.2bn of…prosecutions have come from whistleblowing information reports at that first stage.”
However, City lawyers have warned that implementing a framework where whistleblowers are rewarded requires significant legal and cultural changes.
Richard Cannon, a partner at Stokoe Partnership Solicitors, also suggested potential problems may arise in court when it comes to relying on evidence obtained under such a policy.
Cannon said it is unclear how a UK jury would react to rewarding individuals who may have observed wrongdoing, adding that it “has not historically been part of the criminal justice landscape”.
CUBE comment
Reforms to governance of whistleblowing in the UK are near inevitable.
Whilst legislation aimed at bringing more protections died when Parliament dissolved, it is expected that a new government will revive the proposals in some shape or form.
Labour has pledged to reward whistleblowers in financial services and introduce more channels for individuals to speak up and on a broader range of issues such as Covid fraud and sexual harassment in the workplace.
When the process is managed appropriately, whistleblowers can provide a vital early warning system for organisations. By having the right channels in place,
executives hear about wrongdoing, risk, and malpractice much earlier, and can address issues before they magnify into a crisis.
To ensure your firm stays abreast of changes to whistleblowing rules, leverage AI-powered regulatory change management tools to ensure you remain compliant.
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