Institute Insights - Dear CEO: Enhancing AML through Cognitive Diversity & Effective Whistleblowing

At our 2024 Annual Financial Crime Conference, Dr Mario Menz from The Institute chaired a panel discussion on 'Speaking Up Every Day: From supporting cognitive diversity to whistleblowing' with Arpita Dutt, Chair of the Trustee Board at Parrhesia; Simran Bharaj, Chair of the Financial Services Focus Group at WhistleblowersUK; and Mark Schreiber, Independent Consultant, and former Head of Investigations, Global Compliance Investigations & Whistleblowing at Barclays. 

We have caught up with all four of them and have asked them to summarise the key messages of their discussion into a Dear CEO letter.

Although references to whistleblowing have appeared in various FCA CEO letters, none have specifically addressed the combination of cognitive diversity and whistleblowing. We believe it is important to explore this topic further.

Dear CEO,

Dirty money is the lifeblood of corruption, crime, and war. As leaders in the financial sector, it is imperative that you protect and support your whistleblowers - they are your foot soldiers, highly skilled informants in the relentless fight against economic crime. Focus on the quality of the information they provide, not their motivation for making a disclosure or the temperament with which they convey it. Show them that you value their contributions. Consider financial incentives for information leading to significant recommendations and savings. Consider career progression of those who demonstrate courage and integrity, and ensure that those who retaliate against colleagues who raise concerns are held accountable. Such actions will help change the narrative around whistleblowing and strengthen your firm's role in combating economic crime.

The Critical Role of Whistleblowing as a Regulatory Control

Whistleblowing is first and foremost a regulatory control to identify misconduct, criminality, and poor practice. The reason corporate crime, such as fraud, is at epidemic levels is due to the lack of quality intelligence, the ability to process it, and a limiting framework to protect those who provide this vital information. There are compelling moral and critical commercial reasons to engage with these points. Significant financial losses that destroy businesses and the wider economy often occur when intelligence is not provided, or when it fails to be acted upon responsibly, swiftly, and with vigour. Advise your boards to view whistleblowing controls not only as investments into safeguarding profits but also as crucial to providing a psychologically safe working environment for staff members - preserving both is essential for your business to flourish.

Embracing Cognitive Diversity and Creating a Healthy Speak-Up Environment

Ensure that your firms embrace cognitive diversity and create environments where people feel safe to speak up. At the whistleblowing end of the spectrum, regulators, especially those focused on firms’ cultural health like the FCA, will be interested in the effectiveness of your arrangements for the disclosure of concerns. However, a healthy speak-up culture is beneficial for business in a broader sense. The most successful teams operate within a culture of psychological safety, as highlighted by Google’s Aristotle Project, enabling them better to collaborate effectively and share diverse views. Colleagues in such environments are not afraid to contribute their views and challenge each other, feeling free to express their opinions and share concerns without fear of retaliation.

Conversely, in environments where colleagues do not feel safe to speak up, they avoid challenging views with which they disagree, missing the benefits of diverse inputs. Fearful colleagues rarely raise serious and important concerns through whistleblowing channels or otherwise, fearing retaliation - or worse, career suicide. Each concern not raised represents a missed opportunity to limit the economic, operational, and reputational harms arising from unidentified risks and control failings, and unethical practices.

Simply put, to service a diverse economy we need diverse thinking.

Developing a Healthy Speak-Up Culture

Developing a healthy speak-up culture is challenging. It must come from the top of the organisation and apply to every single member of staff. It must be evident in well-developed and well-governed whistleblowing processes designed to protect and champion those who raise concerns, and in the policies and procedures that support a zero-tolerance approach to retaliation, including the potential for disciplinary action. It requires regular, enterprise-wide education, training, and encouragement of good collaboration practices, including on how to effectively give (and receive) challenge. Where confidentiality allows, firms and their people leaders should showcase effective speak-up examples and start to shift the stigma around whistleblowing by beginning to celebrate those who have made a difference by raising their concerns.

Listen Up Culture: The Importance of Responsive Leadership

To create a healthy speak-up culture there is a pre-requisite for a listen up culture. When employees summon the courage to raise issues or share insights, it signifies a level of trust in the organisation's leadership and processes.

Failure to acknowledge or respond to these contributions can erode trust and confidence, leading to disengagement and a reluctance to participate further. Furthermore, when employees perceive that their input is disregarded or overlooked, it sends a message that their opinions are not valued, stifling innovation and collaboration. This can have detrimental effects on morale, productivity, and ultimately, the organisation's ability to adapt and thrive in a dynamic business landscape. Therefore, it is imperative for leaders to not only encourage open communication but also actively listen to employee feedback, consider their perspectives, and take appropriate action. This proactive approach demonstrates a commitment to inclusivity, transparency, and continuous improvement, fostering a culture where employees feel respected, valued, and empowered to contribute their best.

Studies show that even in diverse teams, dominant voices often overshadow others, limiting the effectiveness of diversity in decision-making processes. Leaders must encourage and reward challenges to their views to demonstrate a commitment to valuing diverse perspectives. Effective leadership involves training for balanced meeting management, ensuring all voices are heard. Leaders should be equipped with skills to facilitate discussions where speaking and listening are shared responsibilities. Incorporating structured feedback mechanisms where employee suggestions are reviewed and where appropriate acted upon is essential.

Senior management must exemplify an environment where challenging the status quo is normal, safe and supported. By visibly backing employees who speak up, leaders can mitigate fears of retaliation and emphasize that the best arguments prevail, regardless of who presents them. Embracing these principles transforms organisational culture, empowering every employee to contribute fully, confident that their insights are valued and will lead to action.

Conclusion

Whistleblowing controls not only encourage regulatory compliance but it also position firms as market leaders in promoting a safer, more ethical financial industry. There continues to be a strong correlation with ethical ESG practices and shareholder value.

Embracing these strategies will enhance your firm's reputation, attract and retain top talent, and potentially unlock new business opportunities by demonstrating a commitment to integrity and transparency.

A clear speak/listen up culture and responsive leadership can lead to significant improvements in operational efficiency and risk management. Engaged employees are more likely to identify and address inefficiencies, contribute to problem-solving, and prevent costly ethical missteps before they escalate. This proactive approach can reduce legal and compliance risk, safeguarding your firm's profitability and shareholder value.

We encourage you to review these strategies with your management team and take decisive steps to integrate them into your firm’s operational, regulatory and cultural framework.