UK Regulation
UK FCA changes official stance opposing payments to whistleblowers
• 5 minute read
December 12, 2024
The UK Financial Conduct Authority (FCA) has changed its decade-long opposition to paying whistleblowers.
“We recognise that there are benefits in, and implications of, providing incentivisation to whistleblowers. It needs careful consideration and scrutiny,” a FCA spokesperson said yesterday.
The announcement followed the publication of a Royal United Services Institute (RUSI) report by legal policy expert and research fellow Eliza Lockhart. This examined the role that rewards for whistleblowers played in the fight against economic crime.
The report concluded that cash-for-information schemes had the potential to deliver valuable outcomes: “Financial rewards incentivise whistleblowers to come forward with actionable intelligence about concealed economic crimes, thereby improving the speed, efficiency and cost effectiveness of law enforcement investigations.”
Change of tune
The FCA had previously expressed scepticism, in a 2014 note, about the efficacy of offering rewards to whistleblowers, saying: “There is as yet no empirical evidence of incentives leading to an increase in the number or quality of disclosures received by the regulators.” It added that such payment could undermine firms’ internal efforts to encourage employees to speak up about wrongdoing.
This stance looks increasingly untenable and out of step with the prevailing mood, however.
Mary Inman, a partner at law firm Whistleblower Partners who has experience of supporting individuals making protected disclosures in both the UK and the US, said public opinion on paying rewards had changed, in the wake of the Post Office scandal.
In May, David Lammy, now foreign secretary, said a Labour government would support payments to whistleblowers who exposed money laundering and corruption. Meanwhile, Serious Fraud Office director Nick Ephgrave, who is in favour of introducing rewards, spoke at the launch event for the RUSI report.
Yesterday, the FCA said it had been “engaging with other UK regulators, government departments, and industry partners to understand the potential impact and implications that the introduction of incentivisation may have”.
In the UK, the Competition and Markets Authority (CMA) and HM Revenue and Customs (HMRC) already operate whistleblower reward programmes.
The former can pay out up to £250,000 for information that results in enforcement action over unlawful cartels, and HMRC paid out a total of £1 million to whistleblowers in 2023/24, according to a Freedom of Information response obtained by accountancy firm, Price Bailey.
Comprehensive programme
However, Lockhart also cautioned that whistleblowing reward programmes were only effective as part of a comprehensive framework to incentivise and protect whistleblowers.
Inman, who was interviewed for the RUSI report, also observed that rewards alone were not a silver bullet. “You have to change the whole environment. You have to have a specific regulation and guidelines on how to operate a whistleblower programme, and parliamentarians have to watch regulators to see how they are operating it,” she said.
In the US, regulators must file a yearly report on how they have operated their reward programmes. According to the Securities and Exchange Commission (SEC) 2024 report to the United States Congress, the largest number of whistleblowing reports to the US regulator from any overseas country — after Canada — came from UK-based individuals.
US reporting
Inman said it was not surprising so many UK-based individuals chose to report their concerns to US regulators rather than the FCA, because the latter “has a bad track record for protecting whistleblowers”. This was evidenced by the FCA’s own survey of individuals who have made protected disclosures to it, which found most respondents were dissatisfied with the treatment they had received from the regulator.
Ephgrave said he wanted more whistleblowers to report concerns in the UK rather than the US. “A change in the UK system would see individuals report to UK authorities, leading to increased detection and prosecution of economic crime here,” he added.