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Whistleblowing on Fitness and Probity

21 July 2014

Introduction 

What action can a regulated financial service provider ("RFSP") take against an employee who has disclosed to the Central Bank ("CBI") suspicions that a colleague who performs a controlled function ("relevant person") is in breach of the fitness and probity standards (the "Standards") under the Central Bank Reform Act, 2010? In other words, can a RFSP sanction a whistleblower employee? 

Before legislation was introduced recently to protect whistleblowers, employers could treat whistleblowers as having breached their employment contract either in terms of the obligation of confidentiality or the implied duty of loyalty insofar as the employer's business was damaged or disrupted. 

Currently, under Part V of the Central Bank (Supervision and Enforcement) Act, 2013 (the "Act"), a RFSP cannot penalise any of its employees who make, in good faith, a disclosure to the CBI, if the relevant employee has reasonable grounds for believing that an offence under any provision of financial services legislation may have been committed. Importantly, however the Act does not apply to disclosures made anonymously. 

The government has introduced new legislation, this 15 July 2014, to allow employees in any area of industry blow the whistle on perceived wrongdoings without fear of being penalised. The Protected Disclosures Act, 2014 (the "PDA"), permits disclosures to be made anonymously and without an express requirement for good faith. 

Interestingly, the Act would not apply to disclosures which qualify as protected disclosures under the PDA, except in the case of the whistleblower being a person appointed to perform a pre-approval controlled function. This would therefore reduce the ambit of the criminal sanctions set out in the Act against employers who penalize or threaten penalization against an employee who makes a protected disclosure under the Act. 

It is strongly recommended that RFSPs, if they have not already done so, introduce a company whistleblowing policy and, importantly, train employees on the required procedure for raising alarms about actual or potential wrongdoings by co-workers, including breach of the Standards. A RFSP's best interest will be served by controlling the manner in which any one of its employees seeks to raise the alarm on a perceived breach of the Standards and, importantly, keeping such disclosures in-house so far as permitted. 

Pre-existing Legislation 

As regards legislation, Ireland has to date adopted a sector-by-sector approach to whistleblower protection. The Act firstly protects employees who make disclosures, in good faith, to the CBI with reasonable grounds for believing that the disclosure will show one or more of the following: 

(a)  That an offence under any provision of financial services legislation may have been or may be being committed. 

(b)  That a prescribed contravention may have been or may be being committed. 

(c)  That any other provision of financial services legislation may have been or may be being contravened. 

(d)  That evidence of any matter which comes within paragraph (a), (b) or (c) has been, is being or is likely to be deliberately concealed or destroyed. 

Secondly, there is an obligation on individuals performing a pre-approval controlled function to "as soon as it is practicable" disclose to the CBI information relating to (a), (b), (c) and (d) above which he believes will be of material assistance to the CBI. Such a disclosure to the CBI would also constitute a protected disclosure under the Act ("S. 38(2) protected disclosure"). 

A disclosure made anonymously will not be a protected disclosure under the Act. 

An employee who makes a protected disclosure under the Act is protected in that they cannot be penalised, for example dismissed from employment, suspended or transferred from duties. An employer who penalises or threatens penalisation against such an employee, or causes or permits any other person to penalise or threaten penalisation, commits an offence and is liable "on indictment to a fine not exceeding €250,000 or imprisonment for a term not exceeding 2 years, or both." 

If the penalisation constitutes a dismissal from employment then the employee would be liable to a maximum compensation award of 2 years' remuneration under the Unfair Dismissals Acts 1977 to 2007, or to recover damages at common law for wrongful dismissal. 

Furthermore, an employee is protected from civil liability regarding a protected disclosure under the Act. 

New Legislation 

The PDA has been introduced into law this 15 July 2014. Under the PDA, a protected disclosure means the disclosure by a worker of information that came to his attention in connection with his employment and which he reasonably believes tends to show, among other things, "that an offence has been, is being or is likely to be committed." 

While the PDA does not prohibit anonymously made disclosures and does not expressly require good faith as provided under the Act, the PDA does direct that disclosure be made to either: 

(1)  his employer or some other person he reasonably believes has legal responsibility for the subject matter of the disclosure; 

(2)  a prescribed person (the Minister would have to set out a list by order); 

(3)  a barrister, solicitor, trade union official or official of an excepted body (per the Trade Union Act, 1941) in the course of obtaining legal advice; or 

(4)  any third party if the worker reasonably believes the information disclosed is substantially true, the disclosure is not made for personal gain, it is deemed reasonable for the worker to have made such disclosure and one of the following applies: 

(i)  The worker reasonably believes he will be penalised if he makes disclosure under (1) and (2).

(ii)  If there is no relevant prescribed person under (2), the worker reasonably believes it is likely the evidence relating to the wrongdoing will be concealed or destroyed.

(iii)  The worker has previously made disclosures of substantially the same information in accordance with (1), (2) or (3).

(iv)  The relevant wrongdoing is of an exceptionally serious nature

An employee who makes a protected disclosure under the PDA is protected in that they cannot be penalised, for example dismissed from employment, suspended or transferred from duties, and the PDA provides for a maximum compensation award of 5 years' remuneration.  Furthermore, an employee is protected from civil liability regarding making a protected disclosure under the PDA. 

It is noteworthy that the PDA would amend the Act so that if a disclosure constitutes a protected disclosure under the PDA, it would not constitute a protected disclosure for the purposes of the Act, save for a S. 38(2) protected disclosure. This appears to reduce the ambit of the criminal sanctions set out in the Act (referred to above) against employers who penalize or threaten penalization against an employee who makes a protected disclosure under the Act, unless it is a S. 38(2) protected disclosure. 

Whistleblowing Policy 

It is recommended that RFSPs would be best served by implementing a whistleblowing policy, if they have not already done so, with the intention of providing a procedure whereby whistleblowing disclosures would be made in the first instance to the RFSP. The RFSP would then be in a position to carry out its own investigation and to consider what further steps should be taken, including a possible report to the CBI. Of course, the RFSP will have to consider at what point in time, if at all, it is obliged to report a whistleblowing disclosure to the CBI under the Act. 

Any such whistleblowing policy should expressly differentiate itself from the employer's grievance policy so that there can be no confusion as to when a member of staff is purporting to make a whistleblowing disclosure. This will also assist the employer better understand the expectations of its staff. 

As with all company policies, ideally staff should receive training on the whistleblowing policy and, at the very least, acknowledge that they have read and understand the policy. 

As a final point, many whistleblowing policies include access to a whistleblowing hotline. Companies which have to comply with the US Sarbanes-Oxley Act will be familiar with the potential difficulties in this area including consideration of the employer's data protection obligations where the hotline is outsourced to a foreign jurisdiction and pursuing anonymous disclosures where there is insufficient detail and you cannot ask follow-up questions. 

Conclusion 

Where more public attention is directed to whistleblowing, it can be expected that it will become an increasing issue in the workplace generally. Third party bodies have been established in Ireland with the sole purpose of supporting whistleblowing employees, for example, Transparency International. As regards RFSPs and the Irish financial industry, there is also an increased focus on whistleblowing and the CBI has a dedicated webpage on the matter.

For employers, the key concern regarding whistleblowing is containment. That should be secured through clear procedures allowing good management of any disclosure made.

The potential liability for mismanagement could be large, including possible criminal sanction. More immediately visible to employees will be the potential large compensation that can be awarded to them if their employer breaches relevant legislation. 

What should employers do? 

Employers should put in place a company whistleblowing policy. In practice, it would be of great assistance if the employer could point to a whistleblowing policy and whether or not it had been complied with by the whistleblowing employee. 

As with all company policies, ideally staff should receive training on the whistleblowing policy and, at the very least, acknowledge that they have read and understand the policy. In particular, individuals performing a pre-approval controlled function should be trained on the extent of their obligation to report to the CBI, the S. 38(2) protected disclosure. 

As the PDA allows for anonymous disclosures, companies should consider any need for a whistleblowing hotline. This would require consideration of the employer's data protection obligations.

Senior management need to be identified and trained on how to deal with whistleblowing events. The employer would then be in a position to carry out its own investigation and to consider what further steps should be taken, including assessing any obligation to report to the CBI and even possibly the Gardaí (under the Criminal Justice Act 2011).

If you would like further information, please speak with your usual Maples and Calder contact or a member of the Financial Services Regulatory Enforcement Group.


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