City View: Should the UK follow the US in rewarding whistleblowers financially?

Whistleblowing and its apparent public benefits are very much a topic of the moment, driven largely by sometimes huge financial rewards to whistleblowers in the US.

This has led to widespread calls for similar incentives to be available in the UK, as if the seeming elixir of whistleblowing is the answer to many of our problems.

The Department for Business, Innovation and Skills (BIS) investigated the potential benefits of amending UK legislation, and the Financial Conduct Authority (FCA) looked at whether the results obtained in the US by the establishment of the US Securities and Exchange Commission Office of the Whistleblower might be replicated in the UK. These studies suggest that neither the BIS nor the FCA believe financial rewards for whistleblowers would be appropriate or beneficial in the UK and these arguments are set out in a recent FCA and Prudential Regulation Authority (PRA) paper on Financial Incentives for Whistleblowers.
"Fewer than half fit the whistleblower criteria set out in the Public Interest Disclosure Act" Significantly, the headline-grabbing multimillion-dollar awards made in the US have, in the main, been made under the False Claims Act, dating from the US Civil War and in existence for 150 years. This act is designed to protect the US Government from being defrauded and consequently casts a very wide net. Dodd-Frank provisions are designed to protect the public and, as a result of some 6,000 reports, payments have been made of some $15m (mostly to one person). This contrasts with awards under False Claims and related legislation, which has seen multiples of this figure awarded on a number of occasions.

In the UK, statistics collected by the FCA suggest that of some 4,000 reports made over the past 12 months fewer than half fit the whistleblower criteria set out in the Public Interest Disclosure Act governing UK whistleblowing and fewer than 10% of these would meet the criteria for consideration of a financial award, using US guidelines. Even so, the jury may be said to still be very much out on the benefits of the introduction of UK awards.

Despite this highly public 'Non' to the proposal for financial rewards, the subject of 'speaking up' is clearly not going to go away. The CISI, as part of its mission to promote high ethical standards, is launching a new presentation for Corporate Supporters and members entitled Speak Up. The title was chosen because it is less inflammatory than 'whistleblowing', which conveys the impression there are serious wrongs to be uncovered. As a part of the initiative, the Institute has surveyed members to gauge enthusiasm for introducing rewards for whistleblowers. The verdict from more than 1,100 respondents was a resounding 'yes', with 81% 'strongly' or 'somewhat' in favour. This seems to send an unequivocal message.

Financial hardship 81%
of whistleblowers felt their position had worsened as a result of blowing the whistle
What those who argue against 'say and pay' seem to underplay is the financial hardship so often suffered by whistleblowers, despite the apparent protection afforded them through the ability of employment tribunals to award unlimited compensation. The CISI believes that this provides inadequate reassurance to potential whistleblowers and so fails to encourage those with valuable information to put themselves in financial harm's way.

Statistics from charity Public Concern at Work show that 81% of whistleblowers in the finance industry felt that their position had worsened as a result of blowing the whistle. In this light the Institute suggests a system of financial restitution, a Financial Protection fund, established from the substantial fines levied by the regulator, and where payment is not related simply to the amount recovered, could provide the necessary reassurance to potential whistleblowers to make a difference.

In the meantime, the CISI's approach is to promote a culture where observers of wrongdoing are encouraged to speak up at an early stage, before the wrongdoing becomes entrenched. To achieve this, they must be supported by their employer, the regulator and government in order to foster a culture that truly is honest, open, transparent and fair.

This article was first published in the September 2014 print edition of the Review.
Published: 08 Sep 2014
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