If you saw misconduct at your workplace, what would you do? Maybe you could “blow the whistle” internally by raising the issue to your manager or by reporting it to your company’s compliance office. But what if such conduct was so prevalent that nobody cared about your alert? Would you think about reporting the issue to a regulator?
Recent data shows that, in the financial industry in the U.S. and the U.K., an increasing number of people are informing regulators of potential illegal activities. Moreover, whistleblowing tips seem to have emerged as an effective source for regulators to detect misconduct.
In the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new whistleblowing program. The Act established a separate office in the U.S. Securities and Exchange Commission (SEC) to administer the program. In addition, the Act introduced monetary awards to whistleblowers whose information leads to successful enforcement by the SEC. Since the implementation of this new program, the number of whistleblowing tips to the SEC has been on a steady rise. The SEC received alerts from 3,001 whistleblowers in fiscal year 2012 and 3,238 in fiscal year 2013.
In the U.K., whistle blowing reportedly increased even more significantly than in the U.S., up 35% in 2013. It is further reported that more than five thousand whistleblowers contacted the Financial Conduct Authority (FCA) between November 2012 and October 2013, up from slightly under four thousand between November 2011 and October 2012.
In addition, the FCA recently reported that actionable information among whistleblowing tips increased by 65% in 2013. Another dataset shows that the number of cases opened by the FCA and other authorities based on whistleblowers’ information surged from 148 in the third quarter of 2012 to 254 in the third quarter of 2013. The FCA regards whistleblowing as an important information source that provides the regulator with “a direct insight into practices that are taking place in firms.”
The upward trend of whistleblowing will likely continue. In the U.S., the SEC awarded $14 million to a whistleblower in October 2013, by far the largest monetary award since the start of the new whistleblowing program under the Dodd-Frank Act. Further, the SEC granted monetary awards to a total of four whistleblowers in fiscal year 2013, compared to just one in 2012. The total of annual monetary awards reached $14.8 million in fiscal year 2013, compared to $45,739 in 2012. The 2012 award was the SEC’s first monetary award given to a whistleblower under the new whistleblowing program.
Furthermore, the former SEC Co-Chief of Enforcement reportedly predicted that pending cases will result in millions of additional dollars of monetary awards to whistleblowers. More frequent and larger payouts will presumably encourage more employees to report issues to the SEC.
In addition, the U.S. Supreme Court recently ruled that whistleblower protections in the U.S. Sarbanes-Oxley Act apply to private contractors and subcontractors of public companies and mutual funds. In the case Lawson v. FMR LLC, two former employees of a privately held investment adviser, which was a contractor of publicly registered mutual funds, sought legal protections for whistleblowers. The decision will likely encourage employees of certain private companies to blow the whistle.
Across the Atlantic in the U.K., the FCA has increased resources to deal with whistleblowing, and it has committed to enhancing the whistleblowing handling process. The FCA also intends to encourage whistleblowing from under-presented sectors, according to its most recent strategic plan.
Further, although monetary awards are currently not available to whistleblowers in the U.K., the FCA is reportedly considering implementation of monetary rewards. If introduced, such monetary awards should encourage still more employees to bring concerns to the regulator.
The trend toward increasing whistleblowing will also likely expand throughout the European Union (EU). The European Commission reportedly adopted an EU-wide whistleblowing hotline in the investment fund industry in February 2014. In the new EU scheme, whistleblowers can raise an issue to the European Securities and Markets Authority (ESMA) if they think their national authority has failed to respond to a concern about a violation of financial rules. ESMA plans to release more details about the scheme by this summer.
Penn Program on Regulation
University of Pennsylvania Law School
3501 Sansom Street
Philadelphia, Pennsylvania 19104
|General inquiries and submissions: email@example.com|
Information for authors
the contents of this div will be replaced
Elizabeth Warren is the senior United States Senator from Massachusetts. Senator Warren has served in the Senate since 2012, and she is the ranking member on the Economic Policy Subcommittee of the Committee on Banking, Housing, and Urban Affairs. She was the driving force behind the Consumer Financial Protection Bureau, and in 2008, she headed the Congressional Oversight Panel for the Troubled Asset Relief Program.
Jason Furman is the 28th Chairman of the Council of Economic Advisers, a role in which he serves as President Obama’s Chief Economist and as a Member of the President’s Cabinet. A member of President Obama’s Administration since the start of his presidency, Chairman Furman previously served as Principal Deputy Director of the National Economic Council and as Assistant to the President.
Jed S. Rakoff
Jed S. Rakoff is a United States District Court Judge for the Southern District of New York. He ascended to the bench in 1996 after being nominated by President Bill Clinton, and he assumed senior status on December 31, 2010. He is a leading authority in securities law and white-collar crime as well as a prolific writer, having authored four books, 100 published articles, over 220 speeches, and over 425 judicial opinions.
Susan Dudley is the Director of the GW Regulatory Studies Center and distinguished professor of practice at GW’s Trachtenberg School of Public Policy and Public Administration. She serves as president of the Society for Benefit-Cost Analysis, and as a senior fellow of the Administrative Conference of the United States. She served from 2007 to 2009 as the Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget.
Richard L. Hasen
Richard L. Hasen is the Chancellor’s Professor of Law and Political Science at the University of California, Irvine. A leading expert in campaign finance regulation and election law, he is the author of the book, Plutocrats United: Campaign Money, the Supreme Court, and the Distortion of American Elections, as well as the writer of the widely regarded Election Law Blog.
Wendell Pritchett is the Presidential Professor of Law and Education at the University of Pennsylvania Law School, and he is a recognized leader in the field of higher education. He was Deputy Chief of Staff and Director of Policy under Philadelphia Mayor Michael Nutter, who later appointed him to the School Reform Commission, where he served from 2011 to 2014. He also served as Chancellor of Rutgers-Camden from 2009 to 2014.
Mike Lee is the junior United States Senator from Utah. He is the Chairman of the Senate Steering Committee; the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights; and the Water and Power Subcommittee of the Energy and Natural Resources Committee. He was previously General Counsel to Utah Governor Jon Hunstman, and law clerk to Supreme Court Justice Samuel Alito.
Patricia L. Bellia
Patricia L. Bellia is Notre Dame Law School’s William J. and Dorothy K. O’Neill Professor of Law. A teacher and researcher in multiple areas including constitutional law, administrative law, and cyberlaw, Professor Bellia is co-author of a leading cyberlaw casebook and has published articles on internet law and separation of powers. She previously served as an attorney-adviser in the Justice Department’s Office of Legal Counsel.
Donald C. Langevoort
Donald C. Langevoort is the Thomas Aquinas Professor of Law at Georgetown University. He was previously Vanderbilt University School of Law’s Lee S. and Charles A. Speir Professor, and the U.S. Securities & Exchange Commission’s Special Counsel in the Office of the General Counsel. An authority in the area of securities regulation, he is the co-author of a securities regulation casebook and author of a treatise on insider trading.
Rena Steinzor is a professor at the University of Maryland Carey Law School. She is a founder, former president, and member scholar of the Center for Progressive Reform. She teaches and has authored and co-authored books on administrative law, consumer safety, public health, and environmental law. She has testified before Congress multiple times, addressing such issues as the impact of health, safety, and environmental regulations on the economy.
Richard L. Revesz
Richard L. Revesz is New York University School of Law’s Director of the Institute for Policy Integrity and the Lawrence King Professor of Law. From 2002 to 2013, Professor Revesz was the Dean of NYU School of Law. He is a nationally recognized expert in the fields of environmental and regulatory law and policy, with a focus on issues including the use of cost-benefit analysis in administrative regulation.
the contents of this div will be replaced