SFO whistleblower rewards: why financial services firms need to act now

The proposal follows recommendations made by Jonathan Fisher KC and draws heavily on the experience of whistleblower reward schemes in other jurisdictions, particularly the United States.

UK nationals are already the second-largest overseas user group of the US Securities and Exchange Commission’s whistleblower programme. Financial services firms should therefore treat the creation of a UK equivalent as more than a theoretical development. Experience from overseas schemes suggests that both the volume of reports and the quality of information provided to authorities could increase significantly.

So what? Firms may have less time to investigate potential wrongdoing, assess legal and regulatory risk and determine whether to self-report before concerns reach the SFO through an incentivised whistleblower.

The Government proposes that rewards should be available only where information is significant and original and leads to a successful enforcement outcome. Rewards would be funded from financial penalties imposed on companies following successful enforcement action, potentially including Deferred Prosecution Agreements.

The value of a reward could take account of factors such as the significance of the information provided, the whistleblower’s level of cooperation and how promptly the concerns were reported.

So what? Individuals may still chance their luck on reports that may not meet this threshold, and the lack of a potential reward does not mean matters will not be fully investigated by the SFO.  Importantly, the structure of the scheme may encourage individuals to assemble and present the strongest possible evidential case. Firms should be prepared for SFO enquiries supported by requests for detailed internal documents, communications and transactional material

One of the more significant aspects of the consultation is the proposal that an individual’s use of internal reporting procedures could be considered when determining the value of any reward. This could encourage individuals to use internal channels before approaching the authorities.

However, the proposal would not prevent individuals from approaching the SFO directly. Significant rewards may still be available where concerns are reported externally in the first instance.

So what? Firms will need whistleblowing arrangements that are trusted, accessible and demonstrably effective, and a culture that is psychologically safe. Policies alone will not be enough if individuals lack confidence in the internal process or do not use it in practice.

The consultation expressly recognises that whistleblower rewards could encourage companies to identify and self-report wrongdoing at an earlier stage. Jonathan Fisher KC similarly identified the interaction between whistleblower incentivisation and corporate self-reporting policy as an important issue for the Government to consider.

For regulated firms, this creates a clear strategic consideration. The possibility that an insider may already have approached the SFO is likely to become increasingly relevant when determining how to investigate concerns and whether to self-report. This is an issue that regulated firms have already been grappling with in the context of FCA reporting, since the FCA created a channel and campaign for whistleblowing reports to be made directly to it in 2021.  However, the present proposals extend the pool of regulators to consider in self-reporting decisions.  

So what? Firms should ensure that their investigation, escalation and governance arrangements support timely and defensible decisions about remediation, regulatory engagement and self-reporting.  Firms will also need to prepare to face into scrutiny in circumstances where internal investigation outcomes are not aligned to those of the SFO.

The proposed reward scheme would not be linked to the protected disclosure requirements under employment legislation, or the broader pool of categories of whistleblowers under the FCA scheme. Instead, the Government is considering a separate eligibility framework focused on the objectives of the scheme itself.

The consultation also recognises the international nature of economic crime and raises questions about information initially provided to another UK or overseas authority before being passed to the SFO.

So what? The potential reporting population may extend beyond a firm’s UK employees to contractors, consultants, agents, overseas personnel and other third parties. Firms should consider whether those groups can access, and have confidence in, appropriate internal reporting channels.

The consultation seeks views on introducing a criminal offence relating to the harassment or intimidation of individuals who report information under the SFO scheme. It also considers safeguards to address knowingly false reports.

These proposals reflect a broader policy objective of strengthening protections for those who raise concerns about financial crime.

So what? Legal, compliance and HR functions should establish clear protocols for handling allegations involving an individual who has, or may have, reported concerns externally, including decisions affecting that individual during any investigation.

The consultation identifies the FCA’s whistleblowing requirements in SYSC 18 as a possible alternative to more prescriptive statutory approaches. The Government acknowledges that FCA-regulated firms are already subject to detailed whistleblowing obligations and is considering whether those firms should be exempt from any future statutory duty.

However, the consultation contains no commitment to provide such an exemption. Instead, it specifically seeks views on whether one should apply.

So what? FCA-regulated firms should cease the opportunity  to actively engage in the consultation, and to lobby alongside it, whilst also preparing for the possibility that they may need to comply with a new statutory regime alongside SYSC 18.

The consultation refers to aspects of the Irish whistleblowing framework, which implemented the EU Whistleblowing Directive. These requirements include secure reporting channels, acknowledgement within seven days, designated case handlers, structured follow-up processes and regular feedback.

Although it remains unclear whether the UK will adopt a similar model, the approach provides a useful indication of the standards being considered by policymakers.

So what? Firms should benchmark their current arrangements against these standards, particularly in relation to secure reporting channels, acknowledgement periods, designated case handlers, follow-up and feedback.

The Government proposes civil penalties for non-compliance with any future statutory duty and is considering whether enforcement should be overseen by a designated public body, rather than relying solely on Employment Tribunal claims.

This would represent a significant shift away from whistleblowing being viewed primarily through a (narrower) employment law lens.

So what? Boards and senior managers should consider whether the firm can demonstrate that its whistleblowing arrangements operate effectively in practice and would withstand proactive regulatory scrutiny.