Whistleblowing on the FCA’s Agenda… Again

Previously in Financial Regulation Matters we have discussed the issue of whistleblowing, mostly in relation to the case of Barclay’s CEO Jes Staley (here and here). We know that the FCA faced criticism for not suspending Staley in that case, so today’s news that the regulator are looking into the conduct of Royal Bank of Canada (RBC) has brought the issue to the forefront once more. In today’s post we will review this news and look at what whistleblowing actually means, and its ‘function’ in a much broader sense.

The case with RBC has accelerated after a former trader recently won his case against the bank for unfair dismissal. The claim, relating to the trader’s revelations regarding the ‘box-ticking’ culture that was/is prevalent within the firm, concluded with the judge describing the bank’s conduct as ‘egregious’ and that, ultimately, ‘employers should take better care of whistleblowers even if they find them somewhat enervating’. Whilst the FCA has not confirmed the nature of its enquiries with the firm, it is widely believed that they in relation to claims from whistleblowers that legal and compliance problems have not been dealt with adequately for a number of years. For the FCA, it is clear that the issue of whistleblowing is currently high on its agenda (particularly after the response to its performance with Staley), as its head – Andrew Bailey – recently met with the head of Whistleblowers UK to discuss ‘potentially suspect patters of departures of individuals who have raised compliance issues at a number of banks’. In Wednesday’s post we discussed the concept of a regulator’s ‘role’, and presented the concept that regulators have the role of maintaining the ‘system’, rather than protecting the public. On that basis we shall not discuss the FCA in too much detail in this post, but what is of interest is the relationship between the concept of ‘whistleblowing’ and its importance to the ‘system’.

Within the whistleblowing literature, it is often advanced that ‘whistleblowing can and should be understood as a “pro-social” process’. However, there is a competing dynamic at play that revolves around the concept of ‘loyalty’. Older views on the subject have labelled whistleblowing as being ‘disloyal’ against the firm, although more developed views now consider whistleblowing to be ‘loyal’ to the firm, particularly if the firm has advanced the notion of reporting malpractice for the greater good of the company – the concept here is ‘where an organisation has stated that its staff are expected to report suspected wrongdoing, the failure to do so may be regarded as disloyal’. That understanding would suggest that there are positive developments within the field of whistleblowing, and indeed there are, but the process of whistleblowing is a multi-faceted process. One of the most important aspects of the process is that there is adequate protection for one to blow the whistle, and in that regard there is still plenty of work to be done. It was reported recently that Senior MPs and campaigners ‘are demanding the government overhauls laws around whistleblowing, calling the current legislation “wholly inadequate” and “not fit for purpose”’. These calls are in relation to the number of individuals who ‘blow the whistle’ but then lose their jobs, which is a clear inhibitor for whistleblowing. More worrying still, the article discusses how, perhaps, the greatest impact is within the NHS where doctors are losing their jobs after highlighting malpractice. The effect of a reduction in whistleblowing is tremendously obvious in that particular field, but the reduction of whistleblowing in any area is a clear social problem.

The article in The Independent concluded with the views of Philippa Whitford, the SNP’s health spokeswoman, who states that there ‘has to be some form of enforcement and some form of punishment… when someone has real concerns about how a trust or department is being run or how an individual is behaving, they need to be able to come forward safely…’. Admittedly Whitford is talking in relation to public bodies, which perhaps denotes a slight difference in relation to the public-facing nature of those institutions and the ‘duty’ of those involved, for want of a better term. But, in reality, a private institution is more often than not engaging with the public, and the question is whether their responsibility to a ‘consumer’ should be any different to a public body’s responsibility to a ‘citizen’. Arguably, there should be no difference whatsoever. Another question is what should be done to make the process safer for whistleblowers?

Unfortunately, there is no easy answer to that question. If anonymity becomes an absolute in the process, which would protect whistleblowers, then what would be the impact upon businesses or public bodies? What if the claim against them is unsubstantiated, or is not a genuine claim? This is the underlying issue that dominates the concept of whistleblowing and its development, and it is difficult to foresee a middle ground. In the excellent International Handbook on Whistleblowing Research, there are a number of ‘remedies’ discussed, ranging from the criminal law protections that have been developed in the courts, to those involving the (American) constitutional rights infringements that punishing dissenting opinions theoretically constitute. However, when analysing the comparative legal developments, Fasterling finds that there is plenty of divergence between countries, which perhaps lends itself to ‘social’ foundation of the concept of whistleblowing, which impacts upon how it is protected, and indeed advanced. Fundamentally, it all may boil down to the concept of ‘values’, and what a given ‘system’ values.

If a ‘system’ values the development of its business arena, then how whistleblowing is developed and protected can go one of two ways: it will either be advanced upon the concept of the whistleblower doing right by the company and, ultimately, making the organisation a better entity for it, or it will be repressed upon the basis of protecting the company from a variety of effects, including external investigations, a loss of reputational capital, or a number of other things. This discussion directly relates to the discussion on Wednesday regarding the role of regulators, with the relationship being the concept of the regulator being an enforcer, but for whom? Again, it is dependent upon the viewpoint the regulator takes in relation to its role in the wider arena. Again, we must look at the evidence rather than the ideology, and on that basis it is difficult to foresee the process of whistleblowing being afforded more protection anytime soon. The FCA’s treatment of the Staley case means that, for them, acknowledging a breaking of the whistleblowing rules is punishment enough, but the question on the back of that decision is what effect does that decision have? Does it encourage whistleblowing in the future, when one may consider that their superiors will circumvent rules to identify them but then not suffer any serious consequences? Arguably, it does not. Arguably, even though the Staley case was in relation to a personal connection and then somebody somewhat outside of the organisation, the sentiment is loud and clear – the circumvention of whistleblowing rules is allowed, depending upon the importance of those circumventing the rules. For the FCA, Jes Staley as CEO of Barclays presents an entirely different proposition than the RBC, and therefore we may see more punitive action taken in this current case, if the FCA decides to pursue it. If that is the case, then the sentiment that we can take from those diverging actions is even more worrying – is it the case that some people, and organisations (think RBS), are above the law if they are deemed vital to the national interest? The impending unknown in the UK – Brexit – is defining the future of the UK, and stories such of those demonstrate that the effects could be particularly long-term, and particularly damaging.

Keywords – UK, Whistleblowing, Royal Bank of Canada, Barclays, FCA, Financial Regulation, Business, @finregmatters