Amanda has worked in the Bailiwick's fiance industry for more than 30 years, the last 12 spent in the Guernsey Financial Services Commission's Investment Division. Find out more...
The Chartered Institute of Securities & Investment provides insightful and interesting lunchtime events, but by far the best that I have attended in recent years was on the topic of whistleblowing. Whistleblowing processes are put in place by organisations to enable individuals to disclose information in good faith about alleged acts of misconduct, wrongdoing, mismanagement, illegality, etc. for the purpose of forestalling those acts or changing behaviour and, ultimately, to prevent a scandal.
But whistleblowing comes with many challenges.
The first challenge is the term ‘whistleblowing’ which arguably still holds a negative connotation. This negative connotation may explain (at least in part) why whistleblowing policies are not as effective as they could be (or should be) within organisations. The CISI takes the view that the term ‘speaking up’ is more acceptable, as it conjures the suggestion of a more open, ethical culture - I would agree. But what makes a whistleblowing policy effective is not solely down to the name.
The next challenge (and the most significant) is the frequent mistreatment of those who speak up and the stigma resulting from their actions. Speaking up (or whistleblowing, if you’d prefer) takes moral courage. If an individual raises concerns in good faith then they should be listened to and supported, not victimised. However, there are so many examples in recent times of ‘witch-hunts’ by board members and others within organisations to uncover the identity of a whistle-blower for the purpose of discrediting them rather than seeking to address their concerns. Examples include Anna Waterhouse, head of compliance and general counsel at Deutsche Bank’s Dubai office, Jeff Staley, CEO of Barclays Bank Plc, West Suffolk Hospital and, lest we forget, the whistle-blower whose disclosures have led to President Trump’s impeachment trial. These events, whatever the underlying circumstances, would make any individual think twice about raising a concern. The fear of recrimination or victimisation is powerful and likely to sway even the most morally principled person from raising a concern.
A would-be whistle-blower in Guernsey faces an additional challenge and that is the lack of statutory protection. The GFSC has in place whistleblowing facilities that are available to the public, staff, officers or agents of financial services businesses. The GFSC provides assurance to would-be whistle-blowers that any information provided to it will be treated in the strictest confidence. In future, the GFSC will have the power under the new Enforcement Law (when it becomes effective) to make Ordinances in relation to whistleblowing and could use this power to address the issue of confidentiality and protection for whistle-blowers. However, in the meantime, would-be whistle-blowers will need to consider the significance of the lack of protection.
Some countries, such as the USA, offer financial incentives to increase the number and quality of whistle-blowers making disclosures, however, research carried out by the FCA and PRA some years ago found ‘no empirical evidence of incentives leading to an increase in the number or quality of disclosures received by regulators’. I agree with their conclusion that incentives offered by regulators could undermine the introduction and maintenance by firms of effective internal whistleblowing mechanisms. Speaking up or whistleblowing is a public duty and should not be a means of financial gain.
Putting to one side the challenges, let us consider the benefits.
Getting the culture right within an organisation is so important but needs meaningful commitment at all levels of senior management. By implementing and maintaining a policy that allows employees to speak up and raise concerns about malpractice and wrongdoing in the workplace without the fear of recrimination or victimisation helps an organisation engender an open culture that could prevent a scandal. Senior management should give serious consideration to the long-term benefits to their organisation, employees, customers and the wider public of committing to a whistleblowing (or speaking up) policy. The cost of implementing an effective policy is relatively small but the gains are incalculable.
Effective whistleblowing policies benefit organisations in so many ways, here are just a few examples:
- Reinforce compliance policies;
- Minimise risks;
- Uncover financial irregularities;
- Limit reputational damage;
- Reduce misconduct;
- Promote an open and transparent structure;
- Expose unethical behaviour;
- Improve health and safety of employees or the public; and
- Prevent fraud.
What organisation would not want these benefits?...
The regulatory drive continues towards improving the ethical culture within organisations, of which whistleblowing forms a part. In December 2018, the Senior Managers and Certification Regime was introduced to replace the Approved Persons Regime in the UK. In the words of the FCA ‘SM&CR is a catalyst for change – an opportunity to establish healthy cultures and effective governance in firms by encouraging greater individual accountability and setting a new standard of personal conduct’. In 2019, the UK Government proposed replacing the Financial Reporting Council with a new audit regulator, namely the Audit, Reporting and Governance Authority, as a result of recommendations in the Kingman Review following accounting irregularities at companies such as Carillion, Patisserie Valerie and BHS.
The GFSC assesses the conduct risk of a licensee as part of its supervision under the Commission’s PRISM risk based supervisory framework. Even if there is no regulatory requirement for a Guernsey licensee to establish and maintain an internal whistleblowing policy then it makes sense as matter of good practice.
I am sure there are many organisations out there that have successfully implemented effective whistleblowing policies and reaped the rewards, but the burden of increasing levels of regulation on organisations means this issue is probably not top of the agenda. However, I would still strongly encourage boards to consider the benefits.
Let me end with an analogy to illustrate my point. Rather than wait for a fire to burn down your house, doesn’t it make sense to think ahead and install fire alarms to provide an early warning to give you time to call the fire brigade before the fire destroys your home and all your worldly possessions? The cost of an average fire alarm is around £15...