Firstly, what is whistleblowing?

The intent of a whistleblower is to raise concerns about illegal, unethical or harmful practices within a firm. Whistleblowing can be reported internally, reporting misconduct up the chain of command, or reported externally, where observed misconduct is reported directly to a government agency or regulator. Either way, whistleblowing is a crucial practice in banking and financial services, exposing wrongdoing that might otherwise go unnoticed or be deliberately concealed. This article explores the complexities of whistleblowing in the financial sector and shows how Regulatory Technology (RegTech) can facilitate and enable whistleblowing practices, whilst ensuring the confidentiality of such a sensitive matter.

How does whistleblowing work?

Understanding whistleblowing is crucial for employees and firms alike. Reports can be made internally or externally but the chosen route can depend on several factors including the severity of the incident, trust in internal processes and the perceived risks.

Internal whistleblowers can approach their firm’s whistleblowing champion to report concerns, in accordance with their whistleblowing policy. This gives a firm the opportunity to address staffs’ concerns quickly and efficiently, which may not be the case when reported externally.

For whistleblowers who believe internal channels to be ineffective, fear retaliation or the misconduct concerns a senior employee, may raise concerns directly to the regulator. In the case of the financial services sector in the UK, it is the Financial Conduct Authority (FCA) who whistleblowers can make a report to.

Challenges and Risks

While whistleblowers play an essential role in holding financial institutions to account, they often face professional and personal challenges when coming forward:

• Retaliation: Whistleblowers often risk retaliation from their employers, including unfair dismissals and career stagnation. Something which financial sector employees may be particularly vulnerable to, given the competitive nature of the industry.
• Reputational Damage: Those who blow the whistle may face damage to their reputation, being viewed as disloyal – something that can create a social stigma extending beyond the workplace.
• Legal and Financial Risks: while many countries, the UK included, have legal protections for whistleblowers, navigating these protections can be complex with lengthy legal battles and significant costs arising.

These risks are not purely hypothetical. In 2017, Barclays’ CEO (James Staley) attempted to uncover the author of an anonymous letter criticising a senior employee at the bank. His actions breached the bank’s whistleblowing policies and the law on whistleblowing. Staley was fined £642,430. In addition, Barclays was put under a special requirement to report annually to the regulators on how it handles whistleblowing and personal attestations were required from those Senior Managers responsible for the relevant systems and controls.

Firms can encourage ethical behaviour

There are several key steps that firms should take in order to foster a culture of ethical behaviour and support whistleblowers. First and foremost, firms must establish readily available policies that clearly outline how reports can be made safely with the option for disclosures to be made in confidence.

Secondly, firms should implement measures to protect whistleblowers from internal retaliation by ensuring that no action is taken against those who make reports, providing adequate legal support where necessary, and promote a culture that treats whistleblowers with integrity.

Senior management must lead by example, setting an ethical tone that prioritises transparency and accountability. Leaders should actively promote an open-door policy under which employees feel comfortable discussing concerns.

Regular training can help employees to identify issues and understand the importance of whistleblowing. By raising awareness of the available channels, employees are more likely to act and speak up when they encounter misconduct.

The role of RegTech

Regulatory Technology, or RegTech, is transforming how financial institutions manage risks and handle compliance activities. It plays a pivotal role in supporting whistleblowers. RegTech solutions provide a secure and anonymous reporting system, with clearly defined internal channels of communication, enabling confidentiality and promoting a supportive environment.

Utilising RegTech for an internal-first approach benefits both the whistleblower and the organisation, creating an environment where issues can be resolved before escalating to regulatory authorities, and ensuring that employees trust the company’s commitment to ethical behaviour and transparency.

By monitoring activity with a RegTech solution, irregularities and potential misconduct can be detected, enabling firms to be proactive in their risk management, intervening before incidents are allowed to occur.

Axiol is a RegTech solution with a comprehensive suite of targeted compliance and risk management modules, including Whistleblowing. Axiol provides a secure, efficient platform to support internal whistleblowers in a confidential manner, sending reports to whistleblowing champions who in turn can alert the FCA, if warranted. Automated alerts and reminders ensure timely case management and allow due diligence to take place. If you’re interested in learning more about how Axiol can simplify compliance activities and risk management within your firm, book a free product demo today. Visit our website or contact us at info@axiol.com for more information and to explore how we can help you future proof your business.