New Clause 9 - Protection for whistleblowers

Financial Services (Banking Reform) Bill – in a Public Bill Committee am 2:15 pm ar 16 Ebrill 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

‘After Part IVA (43B)(f) of the Employment Rights Act 1996 there is inserted—

“(g) that a breach of regulated activities under FSMA 2000 or the Financial Services Act 2012 has been committed, is being committed, or is likely to be committed.”.’.—(Chris Leslie.)

Brought up, and read the First time.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time.

The notion that individuals who spot offences, or potential criminal offences, in the course of their normal employment, should bring them to the notice of the relevant authorities is not new, but it has not been happening as it should in respect of financial services. Sometimes, employees can feel too intimidated to tell the relevant authorities that they think that something is seriously amiss. That is why, in the Employment Rights Act 1996, criteria were set out that gave some protection from unfair dismissal to employees who feel that an offence is likely to be committed. That is the notion of protected disclosures: the ability of those employees to disclose that misconduct has occurred, is occurring, or could occur.

Currently, under the Employment Rights Act, there is a list that says that if, for example, somebody feels that their health and safety is in danger, they can report that to the relevant authorities and be protected from unfair dismissal. Similarly, damage to the environment—or any criminal offence, for that matter—is subject to protected disclosure if a company is not obeying the law and somebody is covering that up. At present, however, the list does not include those regulatory breaches set out in the Financial Services Act 2012 or the Financial Services and Markets Act 2000. That is why the new clause would insert a specific reference to breaches of those provisions as protected disclosures for the purposes of avoiding unfair dismissal. It is a fairly obvious point. We believe that individuals who might blow the whistle on malpractice should be given immunity. For the new banking system to work well and to be policed effectively, there must be protection for staff who believe that wrongdoing exists in their organisation.

New clause 9 would give us another tool with which to change the culture of the financial services sector. A bank employee might wrestle with their conscience before deciding to break ranks, and if an honest trader suspects wrongdoing and is considering informing the authorities, protections must be in place to mitigate their fear of losing their job, their salary, their employability and their friends and colleagues. We have learned from past experience, including cases such as that of Paul Moore, a high-profile whistleblower who was head of group regulatory risk at HBOS until 2004. He argued that there needs to be stronger protections in this vein. If we are going to reassure people who have similar information that they will be able to continue in their employment after blowing the whistle, we have to take such a step to encourage them to emerge.

There is an argument for asking why new clause 9 does not include references to the Bank of England Act 1998 and other legal provisions. I accept that we must ensure that the full range of financial regulation is covered if a change such as we propose is made to the Employment Rights Act 1996, but the new clause is an important marker from our point of view. We think that the Parliamentary Commission on Banking Standards should look at protection for whistleblowers, and we encourage it to do so in advance of its final report, which I think is due in May.

The Parliamentary Commission was set up in the wake of the LIBOR scandal, which particularly illustrated the importance of making it easier to report wrongdoing. Various news reports and speculation ahead of the  findings of the investigations into LIBOR suggested that there was probably something amiss in LIBOR trading, but nobody came forward with evidence to blow the whistle. We have to shift the balance, because wrongdoing is often not simply a case of one or two rogue traders or individuals. Dozens and dozens of individuals in the banks know when something is not right, and we must ensure that we give them the strength and courage to come forward and report possible crimes and breaches of the regulations. That is why we have tabled the proposal to extend immunity for whistleblowers in financial services.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury 2:30, 16 Ebrill 2013

As the hon. Gentleman says, new clause 9 is designed to ensure that whistleblowers in financial services benefit from the protections in employment law from which whistleblowers in general benefit. Whistleblowing is an important way of uncovering potential abuse that might have consequences for savers, depositors and taxpayers throughout the financial system. Martin Wheatley, the chief executive officer designate of the FCA, told the Parliamentary Commission that the FCA’s predecessor, the FSA, received

“3,000 to 4,000 whistleblowing alerts a year. For us, they are a very valuable source of intelligence.”

That amounts to between 12 and 16 whistleblowing calls every working day, so considerable use is already made of whistleblowing intelligence. Not all of it is actionable; Martin Wheatley told the Commission:

“About 12% of what comes in as whistleblowing alerts is what we would call actionable intelligence”.

It is important now and will be important in the future that we ensure that those who engage in whistleblowing do not suffer detriment as a result. Therefore, it is perfectly reasonable for the hon. Gentleman to raise this issue via the new clause, but I hope that he will feel reassured that all the provisions in it already exist in legislation—in particular, in two sections of the Employment Rights Act 1996. Any disclosures concerning potential criminal offences having been committed are covered by section 43B(1)(a) of the 1996 Act. Given that the Financial Services Act 2012 introduced a new criminal offence relating to benchmark manipulation, that will be covered by the protection for whistleblowers. The other relevant section of the 1996 Act is 43B(1)(b), which provides that disclosures about potential regulatory breaches are also covered by the immunities that Act gives.

Therefore, the proposals in the new clause are covered in existing legislation. However, it is my view that we should not be complacent and it may indeed be desirable to go further in this Bill or in the future. In, I think, Treasury questions or perhaps even the Second Reading debate, the possibility was raised of our considering a whistleblower incentive scheme, similar to that introduced in the US recently by the Securities and Exchange Commission whereby whistleblowers can receive a proportion of any enforcement penalties. I undertook to consider that suggestion, and obviously, any such suggestion raises other issues. In the UK, we have always been very cautious about the use of paid informants, so we need to consider it carefully. I mention that only to point out, as the hon. Gentleman did, that the Parliamentary Commission is considering the matter. I think that hon. Members on both sides of the Committee look forward to hearing its views. We will consider  whether further measures on whistleblowing in the financial services arena are needed in the light of its report. I therefore hope that this debate has given the Committee an opportunity to consider the matter for now and to be assured of the Government’s absolute intention both to protect the existing provisions to safeguard the interests of whistleblowers, and to consider what might be necessary to enhance them further.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am grateful to the Minister for his observations on the current level of whistleblowing practices of which the Financial Services Authority, now the Financial Conduct Authority, is aware. Of course, the real question is the conversion rate—the conversion of what comes through the door as anonymous tip-offs, for example, into hard evidence and people being willing to be witnesses in cases of prosecution. That is where much of the attrition probably takes place. We have just had a debate about the Serious Fraud Office. The point about ensuring that there is hard evidence is one we need to galvanise and support.

It was very helpful that the Minister indicated implicitly that he would be willing to think a lot further about this area. I hear what he says on the question of whether these issues are covered in the legislation as set out, although my view is that it would do no harm to set out explicitly in the Bill that there are particular protections for particular groups of employees where there is a special public interest in these matters.

Also very interesting is the question whether whistleblowers should have a positive incentive—a percentage of any enforcement penalty. There is the question whether paid informants’ evidence is biased as a result. That is not necessarily a problem, but of course it does take the law into a different area, beyond financial services. I would be interested in our thinking further about this issue and reviewing what the options are. We have to catch up with this situation far more effectively and shift the balance. This is all part of changing the culture, so I am glad the Minister has indicated he has an open mind on these issues. For those reasons, I am happy at this stage to beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.