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Protection for informants to be extended to foreign bank branches

Chris Hamblin, Editor, London, 11 May 2017


British branches of overseas banks will have to start obeying the UK's Financial Conduct Authority's new 'whistleblowing' rules by 7 September. This is unlikely, however, to dispel the pervasive 'culture of fear' at British banks.

That culture is evident from the 2016/17 Annual Review of the Banking Standards Board, which was set up in 2015. Question 4 asked 82,000 bank and building society employees (28,000 of whom replied) whether they agreed that "it is difficult to make career progression in my organisation without flexing my ethical standards." Of the employees, 39% strongly agreed, 28% somewhat agreed and 19% were neutral. Question 14 asked them if they believed that "if I raised concerns about the way we work, I would be worried about the negative consequences for me"; 26% strongly agreed, 33% somewhat agreed and 14% were neutral.

In 2013, the Parliamentary Commission for Banking Standards stated that banks ought to put in place mechanisms to support employees of theirs who wanted to tell the authorities about the wrongdoing of their colleagues. In October 2015, the FCA and Prudential Regulation Authority introduced new rules requiring banks and insurers to introduce tale-telling procedures internally. They wanted firms to open channels to all would-be informants and made up rules to require firms to tell employees about FCA/PRA "whistleblowing services" (hotlines) and pay senior managers to be "whistleblowers' champions" to help tipsters be brave. They then consulted interested parties in September last year about their proposals to extend parts of this regime to the branches of overseas banks that resided in the UK. They received a measly nine responses.

Undeterred, they ploughed on. They already had rules for informants that applied to subsidiaries based in the UK, so no firm could ever become a subsidiary in order to avoid those rules. They were anxious to reassure foreign firms that no new rules would ever endanger their existing reporting obligations to their home regulators, whatever those may be. Their final decisions are contained in policy statement PS17/7.

One potential nightmare for telltales is to be found at the end of Annex 2 of the policy paper: "We may be asked to disclose a confidential response under the Freedom of Information Act 2000. We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by the Information Commissioner and the Information Rights Tribunal."

The paper bandies the word 'confidential' around a good deal but never explains what the FCA means by it. The FCA already has a variety of arrangements in place with other regulators (memoranda of understanding, telephone calls and meetings) at which it might share something it calls "whistleblowing information." In mentioning this it restates its commitment to 'confidentiality' without, however, elaborating.

Reporting of concerns by employees to regulators

Rule 18.3.6R applies to firms, although it uses the now-common regulatory device of referring to 'P' as the person subject to it. P must tell its UK-based employees that they may disclose reportable concerns to the PRA or the FCA, also telling them about the methods by which they can do so. Firm P must make it clear to them that they are not required to make reports using P’s internal arrangements before they are allowed to talk to those regulators - this is something ought to be obvious to anyone who lives in a land where speech is free, but some foreign informants might not come from countries where this is the case. This is another way of saying that no informant need make a disclosure to Firm P in the first place. The rule says that all this ought to be stated explicitly in the firm’s "employee handbook," or some equivalent document.

Rule 18.3.10R applies the new rule applies wherever a "European Economic Area relevant authorised person" or a "third-country relevant authorised person" has a branch in the United Kingdom and a group entity which is a "UK relevant authorised person." Firms that are in the first two brackets ought to tell their UK-based employees (in the "employee handbooks") about the tale-telling policies of their group entities in the third.

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