What you need to know
The Government's proposed new laws aimed at significantly expanding the scope of statutory protections afforded to whistleblowers in the UK continue to make their way through Parliament. The Protection for Whistleblowing Bill, first introduced in June 2022, is intended to replace the current whistleblowing regime under the Public Interest Disclosure Act 1998 ("PIDA") and is currently on its second reading in the House of Lords.
As currently drafted, the Bill contains a number of provisions which seek to widen the application of the regime and the Government's powers of enforcement. In particular, the following measures are proposed:
- Expansion of what classifies as a 'protected disclosure'. The proposed legislation brings a series of new matters within the definition of a protected disclosure (including, for example, any regulatory breach, misuses or abuses of authority, and mismanagement of public funds) as well as the removal, deletion or destruction of any documents relating to those matters. Additional powers are also granted to the Secretary of State to prescribe other areas by way of further regulations.
- Expansion of the definition of 'whistleblower' to include non-employees. In a notable departure from the current regime, anyone making a protected disclosure in the public interest may fall within the definition of 'whistleblower', whether an employee of a company or other third party. Whistleblowers would include not only those who have made, make or are intending to make a protected disclosure, but also those who are perceived by a relevant person to have made, be making or intend to make a protected disclosure.
- Creation of the Office of the Whistleblower. Acting as a standalone regulatory body, the Office will oversee the whistleblowing process and produce statutory guidance. It will also be granted extensive enforcement powers, including the ability to investigate disclosures through a new reporting service; issue information, action and redress orders; grant interim relief during the course of proceedings; and levy fines or bring criminal charges against infringing parties. Notably, the Office can make orders for financial redress to be paid to whistleblowers who have suffered detriment as a result of making a complaint. This is in contrast to the position under PIDA, whereby compensation must be sought by whistleblowers by means of an unfair dismissal or 'detriment' claim to an Employment Tribunal.
- Potential for substantial civil penalties. Companies may face significant fines should they fail to comply with any obligations imposed on them by the Office (currently set at a maximum of 10% of annual global turnover, with a cap of £18m). Similarly, individuals could face fines of up to 10% of their gross annual income or a maximum of £50,000.
- Introduction of new criminal offences. A series of new criminal sanctions are also envisaged, including in respect of the offence of 'subjecting a whistleblower to detriment' either intentionally or recklessly, for which fines and/or a custodial sentence may be imposed.
Why this matters to regulated firms and businesses operating in the UK
The proposed new regime will increase the compliance burden and costs for FCA-regulated firms, which are already subject to requirements to establish, implement and maintain appropriate and effective arrangements for the disclosure of reportable concerns by whistleblowers under the Senior arrangements, Systems and Controls section of the FCA Handbook.
The financial services industry is likely to be a sector of focus for the new Office of the Whistleblower, in light of a recent increase in whistleblowing reports to the FCA (reportedly up 14% in the third quarter of 2022, with compliance issues comprising the majority of complaints in 2022). We can expect the frequency of reports to rise given ongoing economic uncertainty and heightened levels of fraud within the financial system. An emerging consciousness amongst workforces in respect of ESG and corporate governance issues, and increased scrutiny on firms' commitment to and compliance with ESG goals, may also contribute to an uptick in whistleblowing complaints.
Firms may be troubled by the exposure to additional litigation risk and increased potential for reputational damage brought about by the new regime, particularly considering the Bill's extension of protections to non-employees and those who may simply claim an intention to make a whistleblowing complaint about current or future circumstances. This is compounded by the Bill's specific prohibition of confidentiality agreements (or equivalent clauses), for example as part of an employment contract or by means of a non-disclosure agreement, which would prevent or restrict a whistleblower from making a protected disclosure.
Companies will also be concerned about falling foul of the new criminal offences contained within the Bill, which for the first time impose custodial sanctions on individuals.
- The new Bill reflects a wider, global trend towards enhancing whistleblower protections. The majority of EU countries were required to implement the EU Whistleblowing Directive by December 2021, which harmonised whistleblowing laws across EU member states and introduced wide-ranging protections to a broad spectrum of people (including shareholders, volunteers, job applicants and family members of potential whistleblowers). Similarly, the US Congress passed the Whistleblower Protection Improvement Act in September 2022 and the Anti-Money Laundering (AML) Whistleblower Improvement Act in December 2022, broadening the US whistleblowing regime's transnational application by allowing people outside of the US to make whistleblowing complaints to US regulators.
- We expect the proliferation of new laws globally to increase the enforcement risk. Firms should consider reviewing existing policies and controls to ensure they meet regulatory expectations and adequately mitigate compliance risks. .
- It remains to be seen whether the Bill will retain its current form, or whether its scope will be expanded or narrowed as it makes its way through the Houses. In any case, the introduction of an enhanced whistleblowing regime is likely to lead to an escalation in the number of complaints, and firms should follow its development with interest.
Authors: Ruby Hamid, Partner; Neil Donovan, Senior Associate; Imogen Chitty, Junior Associate