The FCA and PRA have recommended against the use of financial incentives, in a note responding to the Parliamentary Committee on Banking Standards (PCBS) recommendations on whistleblowing.
In the note, the regulators state that ‘research showed that introducing financial incentives for whistleblowers would be unlikely to increase the number or quality of the disclosures we receive from them’.
The regulators conducted research into the use of financial incentives by US regulators and found that only a small number of whistleblowers actually received a financial incentive and they found no empirical data to support the view that incentives led to an increase in the number or quality of disclosures; concluding that incentives offered by regulators could undermine the introduction and maintenance by firms of effective internal whistleblowing mechanisms.
The FCA and PRA have also stated that from autumn 2014, to improve the process for whistleblowers, they will start to publish annual reports on the whistleblowing disclosures the regulators receive and how these are handled. This will provide greater transparency on how whistleblowers are responded to, which in turn should increase their confidence in coming to the regulators where they feel they cannot report internally, or where they consider that an internal report has been ignored, according to both the regulators.
Alternatives to financial incentives include the FCA using its management information to identify any gaps in the intelligence it receives from whistleblowers, such as sectors of the industry from which it receives fewer disclosures than might be expected.
The FCA plans to develop an outreach programme aimed at raising awareness among potential whistleblowers in those sectors. This will building on the new tracking mechanism, existing forums for meeting whistleblowers, and normal communications tools including the new annual report on whistleblowing.
The FCA will also consider whether there is any additional feedback it can give whistleblowers, within the constraints of the confidentiality provisions in the Financial Services and Markets Act 2000 and European directives.
The PRA will contribute to these developments and continue to work closely with the FCA to deliver a cohesive approach to whistleblowing in the financial services sector.