Enhancing culture through robust whistleblowing

Posted: 22nd June 2015

Whistleblowers in the movies and fiction are often depicted as the brave lone voice. The ones who, against all odds, manage to be heard so as to right the wrongdoings of their organisations. The reality is rather less positive.

Think about the 1976 movie ‘All the President’s Men’ of those heroically uncovering corruption in the Nixon administration. Now think of the very recent National Security Agency (NSA) whistleblower, Edward Snowden who’s currently in asylum in Russia, and has been deemed a dissident and traitor to his country.

Specifically to financial services, incidents we’ve read about incude the whistleblowers who reported massive accounting regularities at Tesco and alleged mortgage fraud at JP Morgan Chase. These were astounding discoveries, and the FCA and PRA are making sure such whistleblowing remains in firms’ considerations with their joint PRA / FCA Consultation Paper (CP). The CP highlights the proposed changes to whistleblowing procedures within firms following the Parliamentary Commission on Banking Standards (PCBS) recommendations that:

• Banks put in place procedures to allow their employees to raise concerns internally
• The PRA and FCA regulate firms to ensure they are effective

THE CULTURE OF WHISTLEBLOWING

With whistleblowing, regulation and culture go ‘hand in glove’. It’s much more than simply having a policy and process. A recent article in The Guardian discusses the work of Professor Alford at the University of Maryland, the author of ‘Whistleblowers: Broken Lives and Organizational Power, a study into the personal impact of whistleblowing’. The findings depicting the long term effects on whistleblowers are alarming – loss of career, bankruptcy, private relationships and health. Such is the contrast between the hero that we see in the fiction, and the realities and impacts of becoming a whistleblower.

Individuals are taking a risk if they blow the whistle. And yet firms are obliged to encourage people to come forward and highlight areas of wrongdoing or malpractice. So what can they do? How can organisations create an environment where people are encouraged to raise their hand without fear of retribution or causing harm to their wellbeing or career?

One international investment bank has taken the initiative by turning a real situation into a case study. A piece to be acted out by professional actors to groups of managers. The case study highlighted a range of serious regulatory issues involving colleagues from different areas of the bank in the UK and overseas.

Issues such as confidentiality breaches, market abuse, and unusual trading patterns were explored through short, acted-out scenarios, covering a year’s worth of action. This was a rare opportunity of examining what happened in hindsight.

The approach was very well received by those taking part and made whistleblowing be seen as acceptable and necessary. Feedback from the regulator has been equally positive – this is the kind of activity that goes to the heart of the FCA’s culture objective.

THE REGULATION OF WHISTLEBLOWING

To date, regulatory guidance on whistleblowing has been limited, although European law is increasingly asking members states to require that firms put arrangements in place. Several recently negotiated regulations and directives have contained such clauses, including the Market Abuse Regime, Fourth Money Laundering Directive, MiFID II and UCITS V. This trend is likely to continue. 

Despite the lack of rules, the industry has been proactive in this area and recognised the benefits that effective whistleblowing procedures can bring. For some firms, the proposed rules will be building on the good practice already in place. For others more extensive work will be required.  Whichever applies to your firm, there are benefits that a whistleblowing policy can bring to your business.

THE BENEFITS OF WHISTLEBLOWING

Whistleblowing allows you to manage risk effectively, protecting your business from the threat of fraud, malpractice and wrongdoing. It also helps create a culture where speaking up becomes normal business practice and people are more prepared to report concerns. This will help to improve behaviour in firms and ultimately improve outcomes.

Specifically from a cultural perspective, whistleblowing helps to:

• Promote a culture of honesty, and a zero tolerance of fraud, corruption and immoral activity amongst your workforce and business affiliates
• Demonstrate an employer’s commitment to ethical business practice
• Uphold professional standards and good practice

If organisations create the appropriate culture, people will feel able to speak up when they suspect there’s been a breach. This is more and more important for firms caught by the upcoming Senior Managers Regime, where firms need to notify the regulator(s) when they’re aware that a person has breached a conduct rule.

Even with the best intentions, things do go wrong from time to time. It’s important for leaders and senior management to ensure that their employees feel safe and secure to come forward, and that lessons are learned.

Regulatory rhetoric on the subject of culture often talks of ‘tone at the top’.  With regard to whistleblowing, act from the top, and take steps to rectify poor behaviours swiftly. This is absolutely critical if you’re to encourage people to use the organisation’s whistleblowing mechanisms, and feel confident that their concerns will be welcomed and valued.