Sydney: 20 June 2013 - The introduction of comprehensive and progressive whistle-blowing regimes is a common element of regulatory enforcement programs as a response to the Global Financial Crisis. Internally, the protection of those that seek to highlight internal wrongdoing is an important part of a company’s internal control and risk management systems.

The Parliamentary Commission on Banking Standards (PCBS) contained focused recommendations on culture and corporate governance, including an extensive section on how to improve whistleblowing procedures and appeals to the regulator to provide better support for employees who expose failings.

Academic and practitioner studies of whistleblowing have tended to laud the United Kingdom’s best practice legislation. Along with Norway, it has dedicated whistleblower protection legislation which extends to both the public and private sectors.  An in-depth report by Transparency International into whistle-blowing legislation, policies and practice in ten European countries found that regulation is 'generally fragmented and weakly enforced' with no single, comprehensive legislative framework in place, unlike the UK.

The UK Public Interest Disclosure Act (PIDA) of 1998 applies to the entire private and public sectors in the jurisdiction and is an example of a simple yet effective law which is concise at just nine pages long. Although the Act facilitates easy external disclosure to regulatory bodies, legislators, professional media and civil society organisations, the PCBS has pointed to an internal investigation into Barclays Wealth America where a 'culture of fear' predominated which was 'actively hostile to compliance' while the bank 'ruled with an iron fist to remove any intervention from those who speak up in opposition (para 774). These fears were 'not unique to banking'. A recent review of the BBC, cited by the PCBS found 'a strong undercurrent of fear' (para 775).

The PCBS notes that the 'numbers of successful whistleblowers in banks is understood to be very low' (para 779), which chimes against information obtained by the consultancy Kroll Advisory Solutions under the Freedom of Information Act.  The number of cases reported to the FSA's whistleblowing helpline increased by 276% over the four years from June 2007 to May 2012. Kroll attributes this dramatic increase to financial crime within businesses that focus investments into developing overseas markets, which often have less stringent controls on criminal activity. The ease of creating electronic identities make it easier for individuals to perpetrate fraud and the recent development of clearer and more established procedures for handling whistleblowing cases and protection for whistleblowers.

Although reporting has increased, the PCBS was 'shocked by the evidence it heard' insofar as 'many people turned a blind eye to misbehaviour and failed to report it. Institutions must ensure that their staff have a clear understanding of their duty to report an instance of wrongdoing' (para 142).

The PIDA has a three-tiered model of disclosure, implying an increasing level of evidence the further the whistleblower goes outside the organisation - protected internal disclosure; protected disclosure to the regulator and protected wider disclosure. The legislation was specifically designed to disclose internally before going outside and fits within a UK culture which has traditionally trusted formal internal reporting procedures before going to an external mechanism if their report is not taken seriously. This model is complemented by the Publicly Available Specification (PAS) Whistleblowing arrangements code of practice, which was produced in 2008 by the British Standards Institution in partnership with Public Concern at Work. This internationally recognised best practice code marked the tenth year of operation of the PIDA and set out good practice for the introduction, revision, operation and review of effective whistleblowing arrangements. It incentivises internal reporting mechanisms which are thorough, timely and independent and have adequate enforcement.

Nonetheless, the shortcomings of the PIDA were exposed to the full public glare following the Libor, Winterbourne View and Mid Staffordshire Foundation NHS Trust scandals. Even before the PCBS, amendments to the PIDA are being implemented through the Enterprise and Regulatory Reform Bill (ERRB) in order to strengthen protections against any detriment or dismissal subsequent to disclosure.

Employees no longer need to demonstrate that their disclosure was made in "good faith". The "good faith" test had discouraged whistleblowers from coming forward because although something may be in the “public interest”, the motive for whistleblowing may have been primarily self-interested. Significantly, employers will now be held vicariously liable where whistleblowers are bullied or victimised.

The recommendations of the PCBS go further. Most significantly, 'the Board member responsible for the institution's whistleblowing procedures be held personally accountable for protecting whistleblowers against detrimental treatment' (para 791). Taking a leaf from the US Office of the Whistleblower, implemented under the Dodd Frank Act, the PCBS has called on the regulator 'to undertake research into the impact of financial incentives in the US in encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency in financial markets' (para 803). I have discussed the merits and historical origins of such an approach here.

The significance of Chapter Seven of the PCBS report, however, is the acknowledgement 'that the financial sector must undergo a significant shift in cultural attitudes towards whistleblowing, from it being viewed with distrust and hostility to one being recognised as an essential element of an effective compliance and audit regime. Attention should focus on achieving this shift of attitude' (para 804).

It is significant because the UK whistleblowing regime was traditionally regarded as that to emulate. If the Emperor never had any clothes in the first place, what does it say for whistleblowing frameworks in other European countries? But more than that, it demonstrates that what is perceived to be one of the best legislative frameworks in the world on whistleblowing can be rendered utterly meaningless without a fundamental cultural realignment to notions of 'informing'.