France has always been, for historical reasons, not keen on introducing whistleblowing – a concept more akin to Anglo-Saxon practices!
The transposition of the fourth “capital requirements directive” (CRD IV) under French law has, however, required the French legislator to implement whistleblowing arrangements in the financial and banking industry. As a result, French regulated entities now have to not only change their internal procedures, but also train their employees and reassess their internal business culture. This is just the beginning. We see whistleblowing taking center stage, in the near future, in the French financial services regulation arena.
Overview of whistleblowing requirements under French financial law
French regulated entities are already familiar with (i) external reporting to TRACFIN (the French financial intelligence unit) on suspicious transactions in accordance with anti-money laundering regulations or to the Autorité des marchés financiers regarding certain types of market abuses or (ii) internal reporting to the relevant compliance officer on compliance related violations.
Whistleblowing has added new reporting layers and is just about to change the French regulatory landscape with several European directives and regulations being (or to be) implemented by financial institutions on whistleblowing arrangements.
For the time being, the French monetary and financial code (FMFC) requires a dual whistleblowing reporting mechanism (internal and external):
- External: employees of financial institutions (and third-party services providers) can now report to the Autorité de contrôle prudentiel et de résolution (ACPR) potential or actual violations of CRD IV and CRR, as well as violations of the FMFC applicable to investments services providers. Interestingly enough, the scope of this reporting goes further than what is provided under CRD IV (as the latter only applies to violations to the CRR or to national laws transposing CRD IV); and
- Internal: regulated entities are required to put in place a “specific, independent and autonomous channel” within the firm for their employees to report breaches.
Whistleblowers are protected under law from any retaliation, discrimination or unfair treatment. This has caused a certain amount of disquiet and uneasiness at senior management levels of financial institutions as whistleblowing is rightly or wrongly seen as a negotiation tool during employer/employee disputes. Other areas of concern include the overlapping new whistleblowing internal reporting regime with the existing channel which allows direct compliance violations to be reported to the relevant compliance officer. The French regulator has indicated that whistleblowing arrangements will be subject to specific scrutiny by them and French regulated entities will have to take the new whistleblowing rules seriously.
MiFID II, UCITS V and AML IV directives, as well PRIIPS or MAR regulations also require financial institutions to implement internal and external whistleblowing mechanisms. Apart from some minor variations between these texts, it is worth noting that UCITS V will require ESMA to provide “one or more secure communication channels for reporting infringements of the national provisions transposing UCITS V”, thus creating a third level of external reporting (in addition to external reporting to national competent authorities and the European Central Bank).
Also of note is the fact that the MAR regulation is to date the only text that allows Member States to grant under certain conditions financial incentives to persons who offer relevant information about potential infringements of the MAR regulation where these persons do not have other pre-existing legal or contractual duties to do so.
The above European directives and regulations include provisions to protect whistleblowers, but the current European legal framework still fails to provide an overall status for whistleblowers.
The challenge for financial institutions will be to gather the relevant legal expertise – regulatory, labour law, IP/IT – in order to anticipate the changes and correctly implement the whistleblowing arrangements.