Financial Institutions Alert – The New SEC Whistleblower Program Takes Effect

On August 12, 2011, the SEC’s new whistleblower incentive program took effect. The program is designed to reward individuals who voluntarily provide the SEC with original information relating to possible violations of the securities laws that leads to a successful enforcement action in which the SEC obtains sanctions of more than $1 million. Previously, whistleblower rewards and anti-retaliation protections only applied to employees of publicly-traded companies, and subsidiaries that were the alter ego of a publicly-traded parent. The whistleblower program adopted pursuant to Section 922 of the Dodd-Frank Act now applies to all companies subject to the securities and commodities laws and certain of their subsidiaries or affiliates. In addition, the program excludes certain individuals from being eligible to claim a reward, including compliance personnel, accountants, lawyers, and those who obtain information illegally.

Importantly, because the whistleblower program does not include a requirement that potential whistleblowers report internally through their firm’s compliance program before reporting going to regulators, firms should review and revise their policies and procedures to encourage and incentivize internal reporting and otherwise enhancing compliance programs to establish an effective “culture of compliance.” Some steps firms may consider taking include:

  • establishing or revising internal reporting policies and procedures to ensure that all reports and complaints are directed to personnel with authority to address the matter, and to bring appropriate issues to the attention of the firm’s Chief Compliance Officer or other members of senior management;
  • providing periodic training sessions to firm personnel (including senior management) to ensure all employees are aware of and comfortable with the firm’s internal reporting procedures and to ensure complaints are adequately addressed by supervisors;
  • providing incentives for internal reporting in the form of cash rewards, certificates of recognition, or by incorporating integrity and compliance efforts into employee performance reviews; and
  • periodically testing the firm’s internal reporting procedures by submitting test tips or complaints to determine the effectiveness of the process and the efficiency of addressing potential issues.  

For additional information on the new whistleblower program or assistance with updating internal reporting policies and procedures, please contact Zac Rosenberg, Compliance Consultant by email at zachary.rosenberg@corecls.com or by phone at (619) 278-0020.