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New Whistleblower Reward Schemes Would Dramatically Increase Enforcement Risk for UK Corporates and Regulated Firms
February 13, 2025Quick read
It is all but inevitable that UK enforcement agencies will start paying for information about organisational misconduct. In the US, whistleblower reward schemes have generated tens of billions of dollars in fines and vastly simplified the investigation of complex economic crime. In the UK, longstanding opposition has now reversed. The SFO has announced proposals for a reward scheme that would match the incentives offered in the US, and the FCA is considering following suit. Lessons from the iterative development of such schemes provide these agencies with a blueprint that should ensure the effectiveness of UK schemes. Meanwhile, the additional protections for whistleblowers provided in the Office of the Whistleblower Bill currently progressing through Parliament would accelerate their take-up. Finally, ever-increasing access to litigation funding provides fertile ground for the proliferation of “no-win, no-fee” whistleblower firms, further driving the success of reward schemes.
Organisations may wish to respond by doubling down on efforts to incentivise employees to report misconduct internally, beginning by reassessing the sources being used to identify and report employee “speak-up” concerns. Additional data may already be available, e.g. from exit interviews or Glassdoor reviews. When considering actions to take in response, we suggest particular thought be given to anti-retaliation reassurances. Organisations with best-practice policies, procedures and training already in place may wish to focus on changes aimed at further embedding a speak-up culture in middle management. This will be most effective where managers are encouraged to vocalise the benefits of speaking up, and incentivised to be receptive to employee concerns. We suggest that all such improvements be agreed and tracked at Board-level.
Background
In the wake of the financial crisis, governments and enforcement agencies considered a series of bold reforms, including offering financial rewards to report financial wrongdoing. In England, the Financial Conduct Authority (FCA) ruled out such measures, citing a lack of evidence as to their effectiveness. The UK Government and other agencies, including the Serious Fraud Office (SFO), leaned on these conclusions and rejected whistleblower rewards.
A very different path was taken in the US. Whistleblower reward schemes proliferated and have been hugely impactful, with tens of thousands of tip-offs annually, and the recovery of billions of dollars in penalties. The intelligence generated has led to faster and more effective investigations, enabling much earlier settlements. Whilst reward schemes have also generated negative externalities, it seems that they are here to stay. The most recent major whistleblower reward scheme (the DoJ pilot scheme) came into effect in August 2024.
Perhaps unsurprisingly, sentiment in the UK has now changed markedly. Nick Ephgrave, Director of the SFO, has launched a relentless PR campaign for the implementation of whistleblower rewards, describing whistleblowers as “keyholders”, without which his investigators are left “scrambling in the dark”. He has also emphasised that just 5% of SFO cases come from whistleblowers, compared to 86% in the US.
In November 2024, Ephgrave announced proposals to reward whistleblowers at levels matching what is seen in the US. Under SFO plans, whistleblowers providing information leading to a conviction would be eligible for between 10-30% of the value of the penalty levied on the organisation. In a nod to the negative externalities of US schemes, the SFO’s proposals would not reward criminal wrongdoers, but would still allow them to escape jailtime.
The FCA has also signalled that its longstanding opposition to paying whistleblowers may change, announcing that it is in discussions with government and other agencies about the potential implementation of rewards. In our view, the FCA’s previous position is no longer sustainable following the publication in December 2024 of compelling research by the United Royal Services Institute, which disproved many of the FCA’s concerns. Moreover, both the SFO and FCA see whistleblower intelligence as crucial for improving the speed and effectiveness of their investigations – areas where they have both faced relentless criticism.
Conditions in the UK appear ripe for success. There have been significant learnings from the implementation of reward schemes in the US, which have developed incrementally over time to address perceived weaknesses. The SFO and FCA therefore have a map that, if used correctly, should help avoid some of the early issues encountered by US schemes. One learning has been that to maximise effectiveness, reward schemes should be accompanied by robust protections for whistleblowers, in particular confidentiality and anti-retaliation measures. It is highly unlikely that reform would be implemented without those additional protections. One powerful option would be the creation of an independent “Office of the Whistleblower”, as proposed by the bill of that name currently progressing through Parliament. The Office of the Whistleblower would, among other things, promote, monitor and enforce the protection of whistleblowers.
In addition, there is fertile ground in the UK for the proliferation of no-win, no-fee whistleblower firms, which have notably boosted the take-up of reward schemes in the US. The availability of “no-win, no-fee” fee arrangements and increasingly mature litigation funding market litigation are key aspects of this. The litigation funding industry in England and Wales is now the second largest such market in the world, with UK third-party funders assets increasing from £198 million in 2011-2012 to £2.2 billion in 2021.
Impact
These reforms could dramatically increase the chances of misconduct being unearthed and reported, particularly through external channels. The increased risk is greatest for global corporations and financial institutions. The SFO faces disproportionately higher challenges in investigating these organisations, where wrongdoing is typically most complex, well-hidden and multi-jurisdictional, and where investigation involves the heaviest document review and disclosure burdens. A significant increase in the quality and quantity of whistleblower reports would provide Ephgrave with his sought-after “keyholders”, significantly reducing these obstacles.
An uptick in intelligence reported to the SFO would also assist other agencies in their work, as the SFO shares much of its intelligence with Financial Conduct Authority, HMRC, and other agencies. One pronounced collateral effect of an SFO reward scheme could be increased supervisory and enforcement action by the FCA against regulated firms. The regulator has a significantly broader remit than the SFO, and correspondingly greater interest in even lower-level misconduct by regulated individuals and firms.
Increasing the attractiveness of internal whistleblowing channels
Organisations considering how they can further incentivise their employees to take up internal whistleblowing channels may wish to consider the breadth of relevant data reported up to the whistleblowing champion and/or Board. This might cover, for example: (i) the proportion of internal whistleblowers that raised concerns anonymously, confidentially or openly, (ii) the number of whistleblowing reports received from third parties – e.g. contractors or suppliers, (iii) the number of whistleblowers in particular geographic or business areas, (iv) the relative seniority of whistleblowers, and/or (v) the number of whistleblower reports that are alleged to have led to retaliation.
Qualitative data is key for providing context, and many organisations conduct annual or pulse surveys with questions designed to understand employee attitudes to internal whistleblowing. However, these have their limitations, and a number of additional datasets can provide invaluable information. Examples include exit interviews and reviews on Glassdoor, where employees are typically willing to be frank. Although this data generally has a negative bias, it is often indicative of where problems may lie. Other key data include allegations and complaints from outside the organisation and its whistleblowing channels – these may be from pressure groups, individual complainants or in some cases politicians or other representatives. This data is too often overlooked in the context of whistleblowing reporting – even where it is tracked by other functions within the organisation, including the public relations team.
The final step of this process is the most important for increasing take-up of whistleblower channels, yet often the area most in need of development: The results of whistleblower reporting and analysis must be tracked over time and linked to corrective actions, the effectiveness of which can then also be measured. In our view, it is critical that Boards be fully engaged in this process. Firms that are able to take decisive action designed to embed a genuine speak-up culture will likely see the greatest results. Unfortunately, published guidance is often unilluminating. One example is the UK government’s much heralded guidance on the failure to prevent fraud offence, which comes into force on 1 September 2025. This suggests that for the purposes of establishing a reasonable procedures defence, “organisations may wish to consider measures such as ... overseeing a culture where employees feel able to raise concerns”.
In our view, the following measures may merit particular consideration:
- Strengthening anti-retaliation polices/procedures: explaining in policies and training the rights employees have against retaliation, and how the organisation’s policies and procedures are designed to protect them, including through defined channels for reporting retaliation. US organisations typically do a better job here than their British counterparts. Recent data show that half of FTSE 100 companies have no written commitments to protect staff raising concerns over ethical behaviour and business practices.
- Demonstrating an impartial process for investigating whistleblower complaints: beginning with genuinely anonymous reporting channels, and including a well-resourced ethics/investigations function, supported by third-party counsel in appropriate cases. Critically, there should not be any scope for even a perceived conflict of interest on the part of those conducting the investigation.
- Supporting the development of a speak-up culture, particularly among middle-managers. For example:
- encouraging managers to celebrate individuals who have spoken up and contributed to positive change, e.g. by calling out speak-up contributions in regular team meetings. The example set by senior leadership is critical, but this can also be promulgated by training managers on the value of whistleblowing as an early-warning risk detection system; and
- incentivising managers, by including contribution to speak-up culture as a key performance indicator, relevant to recruitment, appraisal and compensation reviews. This typically requires close integration between the Compliance/Ethics and Human Resources functions.
We would be very happy to discuss how our experience in these areas might be of assistance, including as part of a review of your organisation’s compliance procedures, or as a standalone culture and governance review.
