FX: Hopes rise for whistleblowing cases
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Foreign Exchange

FX: Hopes rise for whistleblowing cases

Revelations of benchmark fixing and manipulation appear to have created a more favourable environment for FX industry participants to highlight suspected wrongdoing but the data tell a different story in the UK.

The Financial Conduct Authority (FCA) noted a 19% drop in whistleblowing cases in 2015 – 1,104 cases were opened compared with 1,367 in 2014 – despite an ostensibly more-favourable environment for those seeking to highlight industry wrongdoing.

“These stats may come as a disappointment to those who have in recent years taken steps to encourage whistleblowing," says Michael Ruck, senior associate, financial services enforcement and investigations at Pinsent Masons, and formerly with the FCA. 

In the US, cases continue to rise year-on-year, suggesting a reduction in the UK might have more to do with delays in improving the incentive structure for whistleblowing rather than a fall in market-abuse cases.

High-profile market-manipulation criminal prosecutions and civil claims have highlighted examples of the evidence to look for when assessing whether inappropriate behaviour is taking place, including placing false orders, leaking confidential client information or collusion with those in management roles.

The highest-profile case involving market manipulation to date is that of Tom Hayes, who was initially sentenced to 14 years in prison for conspiracy to defraud in the Libor scandal, a sentence that was reduced to 11 years on review.

Jeffrey Newman-160x186

Jeffrey Newman

Jeffrey Newman, of Boston-based Jeffrey A Newman & Associates, says bank employees have become willing to come forward with manipulation concerns, adding that conversations with individuals who are aware of fraud and wrongdoing reveal they are more inclined to disclose what they know and are less fearful of retaliation.

“The US Department of Justice and the Securities and Exchange Commission have been aggressive as to retaliation,” he explains. “In addition, there is a growing understanding of the workings of the whistleblower laws, which allow for significant percentages of sums collected from fines to the whistleblowers – in some cases, this is a percentage of billions of dollars.”

Not everyone is comfortable with the concept of offering rewards, though.

Simon Clark, a partner in the employment/general litigation specialist practice at Holman Fenwick Willan, says: “A whistleblower should not, in my opinion, ever look for payment for their information – it is counter intuitive.”

Newman is unconcerned that would-be whistleblowers would be deterred from speaking out for fear of prosecution, observing that, for the most part, whistleblowers gain significant protection once they engage the appropriate laws through competent counsel.


Some of those held to account are facing custodial sentences or extradition to the US, so whilst there has been a surprisingly low number of individuals held to account, the consequences of a successful prosecution are draconian, observes Jonathan Kitchin, senior associate in the commercial and regulatory disputes team at Michelmores.

“Also, the FCA has announced a package of new rules relating to whistleblowing, which include a senior manager acting as a whistleblowers’ champion, annual reporting on whistleblowing and putting arrangements in place to handle all types of disclosure,” he adds.

The FCA/Prudential Regulation Authority rules, in relation to whistleblowing that take effect from September, require a firm to appoint a senior manager as their whistleblowers’ champion.

Michael Ruck-160x186

Michael Ruck,
Pinsent Masons

However, Pinsent Masons' Ruck believes the level of fines levied for benchmark fixing and manipulation might have caused some firms or individuals to think twice before highlighting suspended wrongdoing or poor practice to regulators for fear of placing themselves at risk of such penalties.

“The key focus for firms is to identify any potential wrongdoing as early as possible, create a plan of how to remedy the issue and consider their reporting requirements,” he says.

“Regulators have recently taken various actions in circumstances where firms or individuals have failed to bring matters to the regulators’ attention in accordance with their regulatory responsibilities. The question for employees and senior management alike is whether they are willing to work in an environment where speaking up or whistleblowing is not supported.”

Duty of fidelity

While there is no statutory obligation on employees to blow the whistle on malpractice, they owe a general duty of fidelity to report wrong-doing to their employers, explains Michelmores’ Kitchin.

“If a worker holds a reasonable belief that disclosing wrongdoing – for example, genuine misconduct or fraud – will be in the public interest and the worker subsequently makes a relevant and protected disclosure to his employer or other prescribed person concerning that wrongdoing, but subsequently suffers any detriment – including dismissal – as a result of having made a protected disclosure, the worker will ultimately be entitled to seek to rely upon statutory employment law protection before an employment tribunal,” he says.

Some individuals might be required to notify the FCA of certain events depending on the role they fulfil and abide by relevant codes of conduct, continues Kitchin.

Jonathan Kitchin-160x186

Jonathan Kitchin,

“There are no guarantees as to what, if any, enforcement action may result from a self-report or blowing the whistle, but being open and cooperative with the regulator is a fundamental principle. 

“There are no financial incentives in the UK, but the FCA’s PS15/16 ‘Strengthening the alignment of risk and reward: new remuneration rules’ comments on the role of remuneration in incentivizing staff to conduct themselves properly.”

When considering how to report incidents of malpractice, individuals should be clear on their facts and be able to corroborate their assertions with documents or data and should also act swiftly, concludes Newman.

“Individuals should also retain experienced counsel and avoid speaking about what they know to anyone other than counsel, as some laws bar claims for whistleblowers who have disclosed information publicly,” he says.

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