The whistleblowers’ champion - the new non-executive director role

Introduction

The new rules on whistleblowing issued by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) require affected firms to have assigned responsibilities to a non-executive director to be its whistleblowers’ champion by 07 March 2016.

In addition to ongoing responsibilities, the new champion was responsible for overseeing the firm’s transition to the new arrangements for whistleblowing that apply from 07 September 2016.

This role is designated to be supportive of a non-executive’s supervising role and the board’s collective responsibilities. Some care is required in the implementation to enable this, without the “champion” taking on an operational role.

This note sets out the rules and responsibilities that apply to these non-executive directors.

Our view

The general trend in many sectors is to have whistleblowing arrangements in place. Indeed the Governance Code envisages that the Audit Committee will have arrangements for staff to raise concerns about “possible financial or other improprieties” and for such concerns to be “proportionately and independently” investigated and followed up.

So, there is no great surprise or need for alarm about what is being required by the PRA/FCA. We think that with care, it is consistent with the supervisory role of non-executives and with the role of the chairman of the Audit (or Risk) Committee. We see whistleblowing arrangements as a key element of a board enabling the right culture.  In line with this view, the majority of our clients intend to comply with requirements relating to the transition to the new whistleblowing arrangements in advance of the 07 September 2016 deadline.

The difficult question for firms not directly required to have and which don’t have a whistleblowers’ champion is to justify “why don’t we have a whistleblowers’ champion?” But that’s a challenge that can fairly be put to all companies, not just financial services ones.  A number of our clients are therefore rising to this challenge by appointing a whistleblowers’ champion, even if not required to do so by the PRA/FCA.

Where are the rules to be found?

The rules are set out in three documents issued by the PRA and FCA and are designed to complement the new Senior Managers Regime (SMR) and the Senior Insurance Managers Regime (SIMR):

• PRA: Whistleblowing in deposit-takers, PRA-designated investment firms and insurers - PS24/15.
• PRA: Whistleblowing in deposit-takers, PRA-designated investment firms and insurers - SS39/15.
• FCA: PS15/24: Whistleblowing in deposit-takers, PRA-designated investment firms and insurers.

Timescale

• 07 March 2016: responsibilities must have been assigned to a whistleblowers’ champion, and
• 07 September 2016: relevant firms must comply with the requirements.

Who is affected?

The new rules apply to:

• UK deposit-takers (banks, building societies, credit unions) with over £250m in assets
• PRA-designated investment firms, and
• insurance and reinsurance firms within the scope of Solvency II and to the Society of Lloyd’s and managing agents.

The rules will not apply initially to UK branches of overseas banks but this will be explored in a future consultation (which will be launched “soon”).

For other firms regulated by the FCA, the rules act as “non-binding guidance”.

The whistleblowers’ champion

Under the SMR and SIMR firms must allocate a prescribed responsibility relating to the firms’ whistleblowing policies and procedures, and the protection of those using them to a Senior Manager who is a non-executive director (NED). Although referred to as the "whistleblowers’ champion", the FCA makes it clear that firms do not need to use this specific title within the firm.

Individual and collective responsibility

In its Supervisory Statement, the PRA comments on the concern that allocating this responsibility to one individual would damage the collective responsibility of the firm’s board as a whole and notes that, as set out in Supervisory Statement 28/15, although only the whistleblowers’ champion will be required to take on individual responsibilities, the PRA views the regime and its application as consistent with the principle of collective decision making. The SMR and SIMR co-exist with the statutory and fiduciary duties of directors under UK company law and domestic and international corporate governance standards. The regimes clarify and formalise the individual responsibilities which NEDs within their scope should already have in practice. For example, the whistleblowers’ champion will be responsible for ensuring that a report on whistleblowing is made to the board at least once a year. The whole board will then have to consider the report and decide whether any action should be taken as a result.

A non-executive director

Both the PRA and FCA deal with the suggestion that some of the proposed functions of the whistleblowers’ champion blur the roles of executive and non-executive directors and, in particular, that the description of the role of the whistleblowers’ champion in the supervisory statement seemed better suited for an executive director. Both regulators have, therefore, made it clear that the whistleblowers’ champion role is concerned with the oversight of whistleblowing policies and procedures within the firm, rather than day-to-day operations.

The FCA also removed guidance which had originally stated that the champion is expected be open to direct approaches. Now the FCA gives guidance that the whistleblowers’ champion need not have a day-to-day operational role handling disclosures from whistleblowers. That having been said, if a whistleblower does choose to contact them directly, the whistleblowers’ champion will need to consider an appropriate course of action.

The FCA has also specifically stated that it does not expect a firm without NEDs as part of its governance arrangements to create this position specifically to perform the whistleblowers’ champion role.

An overseas champion?

The FCA has specifically stated that it does not object to the champion being based overseas, although the firm will need to be satisfied that he or she can nonetheless perform the role effectively.

What does the non-executive have to do?

Initially, the champion will be responsible for overseeing the firm’s transition to the new arrangements for whistleblowing that apply from 07 September 2016

The PRA’s Supervisory Statement makes it clear that the PRA expects the whistleblowers’ champion to:

• ensure that an annual report is presented to the board, regarding the effectiveness of whistleblowing systems and controls. Although the firm has discretion as to the exact content of the report, the report should:
  • include details of any employment tribunals involving whistleblowers which the firm has lost
  • be made available to the PRA on request, and
• be responsible for ensuring and overseeing the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing, including those policies and procedures intended to protect whistleblowers from being victimised because they have disclosed reportable concerns.

The FCA’s approach

In a similar vein, the FCA’s Policy Statement makes it clear that the whistleblowers’ champion should:

• oversee the preparation of an annual report as part of his or her oversight role (although they themselves do not have to prepare it). Again, there are no rules or guidance on the report’s content, to provide firms with the freedom to tailor it as appropriate
• have responsibility for ensuring and overseeing the integrity, independence and effectiveness of the firm’s policies and procedures on whistleblowing including those policies and procedures intended to protect whistleblowers from being victimised because they have disclosed reportable concerns.

The FCA makes it clear that although it will require a relevant firm to inform it of cases where an employment tribunal finds in favour of a whistleblower when the finding related to a claim that the whistleblower was victimised, this will not be a task for the whistleblowers’ champion, although it will be something for which he or she has oversight as part of the role.

Authority and resources

Both the PRA and the FCA expect firms to ensure that the whistleblowers’ champion has a level of authority within the firm and access to resources (including recourse to independent legal advice and dedicated training) and information sufficient to carry out that function.

Training

The PRA’s Supervisory Statement notes that the PRA expects firms to consider whether training can help make their whistleblowing arrangements more effective and that the whistleblowers’ champion might possibly need specialised training to assist them in the performance of their role. As above, both the PRA and FCA expect firms to ensure that the whistleblowers’ champion has access to dedicated training.