The allegations concerning the National Energy System Operator (NESO) that have been brought into the public spotlight by Shadow Energy Secretary Claire Coutinho over the past week continue to attract significant attention. While the facts remain unclear and it would be wrong to speculate on the merits of the allegations, the episode serves as a timely reminder for all regulated businesses of the importance of robust whistleblowing arrangements.

How prevalent are whistleblowing reports in the regulated sectors?

Regulatory scrutiny can emerge suddenly and from unexpected directions, but whistleblowing reports have long been an important, and occasionally high-profile, source of intelligence for regulators. In many sectors, they provide a pipeline of information that can lead to supervisory or compliance enquiries, formal investigations and enforcement action. Some allegations have generated significant public and media interest; for example, claims relating to gas market manipulation attracted extensive press coverage and regulatory attention in the Guardian in 2012.

The latest statistics published by regulators provide a useful insight into the scale of whistleblowing activity:

Differences in the volume and nature of whistleblowing reports are unsurprising given the varying numbers of regulated entities, sector specific risks and the distinct enforcement approaches adopted by individual regulators. The CMA's figures, for example, must be viewed in the context of its leniency regime, which incentivises businesses to report cartel conduct in exchange for immunity from, or reductions in, penalties under the Competition Act 1998. Historically, that regime has been a particularly significant source of intelligence for the authority.

What are the key requirements for an effective response?

The most developed requirements are found in the financial services sector. Certain firms have been required since 2016 to appoint a Whistleblowers' Champion with responsibility for overseeing the effectiveness of the firm's whistleblowing arrangements and reporting to the board. (See our more detailed note here.) While equivalent obligations do not generally apply across other regulated sectors, the framework provides a useful benchmark for governance and good practice.

At a minimum, organisations should ensure that they have:

• a clear and effective whistleblowing or speak out policy and procedure;
• appropriate communication and training so that employees understand how concerns can be raised and will be handled;
• meaningful senior level ownership and oversight of whistleblowing arrangements; and
• regular reporting and review processes to assess the effectiveness of the framework.

As with other key compliance arrangements, including dawn raid preparedness and regulatory response procedures, whistleblowing frameworks should not be treated as static documents. They should be reviewed, tested and updated regularly to ensure that they remain fit for purpose and reflect changes in the organisation's business, risk profile and regulatory environment.

Key takeaways

As with many aspects of regulatory compliance, preparedness matters. Organisations that can identify concerns early, investigate them effectively and engage constructively with regulators are generally better placed to manage the legal, regulatory and reputational risks that may follow.

Whistleblowing should no longer be viewed solely through an employment law lens. While the employment law dimensions remain important, including the potentially significant liability that can arise from subjecting the whistleblower to any detriment, whistleblowing is increasingly also a matter of regulatory risk management. As well as regulators adopting whistleblowing frameworks, legislation, such as the EU Whistleblowing Directive, is shifting the focus towards establishing independent reporting channels and protection wider than simply employees.  While these laws may not currently apply in the UK they show the general shift in focus.  Effective arrangements and ensuring all stakeholders (such as HR and compliance) work together can help organisations identify and address concerns internally before they escalate into regulatory investigations, political scrutiny or reputational damage.

Please do get in touch if you’d like to discuss any aspects further.

Thanks to Melissa Diaz for her assistance with this post.

Further reading

Whistleblowing: Key steps for regulated firms and individuals when considering and handling protected disclosures