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Banking StandardsWritten evidence from Graham Nicholson, Chief Legal Adviser and Adviser to the Governor, Bank of England

In my evidence to the Parliamentary Commission on Banking Standards on 29 January, I offered to revert to you on the whistle-blowing arrangements being planned for the Prudential Regulation Authority. We recognise that whistle-blowing can be a valuable source of intelligence for a regulator.

The PRA will maintain its own confidential line for whistle-blowers. Information from callers, but not the source, will be shared with the lead supervisor of the relevant firm. The PRA will be a “prescribed body” under the Public Interest Disclosure Act (PIDA) and so those who blow the whistle on their employers may benefit from statutory protections when speaking to the PRA about their employer. This confidential line could also be used by a firm or its employees to raise concerns regarding another firm, although it may well be the case that sensitivities about confidentiality may be less relevant in such a case so that other channels of communication may be used.

I understand from the FSA that only a small minority of correspondence (calls, emails and letters) received by the FSA, and which may be regarded as “whistle-blowing” in the broadest sense, would be relevant to the PRA and its responsibilities. We cannot expect whistle-blowers necessarily to identify the appropriate regulator to whom they should address their concerns and therefore we will have arrangements in place for the FCA to pass over information and contacts that are relevant to the PRA (and vice versa). At least initially, we expect that the majority of correspondence and calls relevant to the PRA will go to the FCA, so the PRA will indirectly benefit from calls to the FCA confidential line. There will also be instances where, following further investigation by the FCA, an issue may be indentified as having implications for prudential supervision where this was not apparent at the outset. In such cases we would expect the FCA to inform the PRA in accordance with arrangements for sharing information made under the Memorandum of Understanding between the two regulators (and as required by the Act).

More broadly, the PRA will review intelligence about firms and individuals that may be relevant to its responsibilities as a prudential supervisor received via other channels including interaction with firms and from the FCA. The PRA will also pass intelligence it has received to the FCA where relevant.

If I may, I would also like to take the opportunity to amplify my response to Lord McFall’s question (Q3048) about the potential for “underlap” between the two regulators in enforcement cases. As I indicated in my reply, there will be cases where both regulators decide to take action—where they will act jointly and ensure cooperation between them—and there will be cases where only one regulator decides to take action. Each regulator will make its own decision, on a case by case basis, by reference to its own statutory objectives, its assessment of the strength of the case against the firm or individual concerned and its priorities.

There will be cases that have a bearing on “safety and soundness” of an institution and the competence or integrity of its senior management which the PRA will be keen to pursue, but which may not give rise to issues of concern to the FCA; the PRA would pursue such cases on its own. The PRA will have its own enforcement capability to enable it to act on its own where this is necessary, drawing on external expertise as required.

There will be cases relating to conduct which are clearly for the FCA to pursue and which to not raise issues for the PRA; the FCA will pursue these cases on its own. And there will be cases which concern both regulators where they will act jointly.

13 February 2013

Prepared 19th June 2013