South Africa’s top financial institutions have recommend in a new report that whistle-blowing be rewarded in an environment of growing corruption and mismanagement.
The 2018 Financial Markets Review, published by the South African Reserve Bank (SARB), in conjunction with Financial Sector Conduct Authority (FSCA), noted that international cases of misconduct in wholesale financial markets have focused the attention of regulators and market participants on measures to strengthen standards of market practice; and increase the accountability of financial institutions and individuals for the ethos and conduct of business.
“Following the global financial crisis of 2007–08, it was observed that senior executives and senior managers in many financial intuitions had a laissez-faire attitude towards corporate governance principles and risk culture within their institutions,” the Reserve Bank said.
“The international focus on strengthening codes and standards in light of misconduct scandals means that South Africa cannot afford to be complacent,” it said.
As a result, South Africa’s financial sector authorities – National Treasury, the South African Reserve Bank (SARB) and the FSCA established the Financial Markets Review Committee (FMRC) to develop recommendations to reinforce conduct standards in wholesale financial markets.
The report would focus on specific tools to strengthen the implementation and governance of conduct standards by market participants; and areas where changes to financial markets legislation and associated subordinate legislation are required to support a new conduct framework.
Recommendations by Treasury in the Financial Markets Review, include, among other things, that regulators consider implementing a programme that rewards whistle-blowers for providing information about substantial misconduct in financial markets that leads to a successful enforcement action with monetary sanctions.
The report noted that in more opaque markets, whistle-blowers who inform regulators of suspected instances of misconduct can be a vital source of information to support regulation against misconduct.
“Market regulators can incentivise market participants to provide such information by ensuring that necessary protections are in place so that no retaliation is taken against a whistle-blower for disclosure of information and, in certain circumstances, monetary rewards are provided,” it said.
In the UK, the report highlighted that banks, building societies, large investment firms and insurers are required to establish and maintain an independent whistle-blowing channel through which staff may make disclosures.
These firms are also required to appoint a senior individual as a whistle-blowers’ champion to ensure the effectiveness of the whistle-blowing arrangements.
In the US, the Securities and Exchanges Commission (SEC) has established a whistle-blower programme in terms of which the SEC is authorised to pay an award of between 10% and 30% of amounts collected if an eligible whistle-blower voluntarily provides original information that leads to a successful enforcement action with monetary sanctions exceeding $1 million.
In terms of whistle-blower protection, under the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), “no employer may discharge, demote, suspend, threaten or harass, directly or indirectly, or in any other manner discriminate against, a whistle-blower in the terms and conditions of employment because of any lawful act done by the whistle-blower”.
An individual may bring a private right of action in federal court against his/her employer for such retaliation. In addition, the SEC may bring an enforcement action against a company for violation of these anti-retaliation provisions, the report stated.
In South Africa, Treasury pointed out that whistle-blowers are protected by legislation.
“The Protected Disclosures Act 26 of 2000 makes provision for employees to report unlawful or irregular conduct by employers and fellow employees while providing protection for employees who blow the whistle.”
“The Act provides such protection for any disclosure made in good faith by an employee who reasonably believes that the information disclosed, and any allegation contained in it, is substantially true, and who does not make the disclosure for purposes of personal gain, excluding any reward payable in terms of any law.”