Non Compliance with Laws and Regulations (NOCLAR)
Well what if you work in financial services and you come across misconduct or other breach of the regulations? The new Code of Ethics incorporates new sections introduced by the International Ethics Standards Board of Accountants (‘IESBA’), which consider what to do when a member suspects non-compliance with laws and regulations (‘NOCLAR’) by an employer or client.
Whistle-blowing
In essence, the new provisions require that members should report the matter within the employer or client and if appropriate, to the auditors. This, in many ways mirrors the whistle blowing rules that apply to many firms already. The FCA's rules on whistleblowing procedures apply to deposit-takers (bank, building society or credit union) with over £250m in assets, PRA-designated investment firm and insurers subject to the Solvency II directive.
Reasonable Steps
The Code of Ethics talks about the individual responsibilities and again this mirrors a lot of what is set out under the Senior Managers and Certification regime.
| Individual conduct rules | Senior manager conduct rules |
|---|---|
| Rule 1: You must act with integrity. | SC1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively. |
| Rule 2: You must act with due skill, care and diligence. | SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system. |
| Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators. | SC3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively. |
| Rule 4: You must pay due regard to the interests of customers and treat them fairly. | SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice. |
| Rule 5: You must observe proper standards of market conduct. |
The Code of Ethics also sets out what to do once you have whistle-blown internally. If the matter is not addressed internally in an appropriate manner, members should then assess if disclosure to a third party is necessary in the public interest. In such circumstances, members should make the disclosure.
The provisions address breaches of laws and regulations discovered during the course of the member’s work and which are relevant to that work. IESBA identifies four categories of member and proposes specific steps for each in responding to NOCLAR. The categories are Senior professional accountants in business, Other professional accountants in business, Auditors, and Professional accountants in public practice providing services other than audit. The changes reflect the notion that Senior professional accountants in business should have greater responsibility to take action in respect of identified issues than other professional accountants in business.
The international code was previously silent on public interest overrides, but ICAEW’s code of ethics has addressed the issue for many years in its discussion on confidentiality. The pre-2010 ICAEW code of ethics adds to the IESBA discussion on confidentiality by explaining that members may disclose confidential information to third parties, when not obliged to do so by law or regulations, if the disclosure can be justified in the public interest and the disclosure is not contrary to laws and regulations.
This add-on material is no longer necessary as it is addressed by the new provisions in the revised 2020 ICAEW code, but additional guidance on public interest considerations will continue to be given in a separate ICAEW document: ‘Professional conduct and disclosure in relation to defaults or unlawful acts’.
This highlights that in the UK, the Public Interest Disclosure Act indicates a number of matters to be considered in order to determine whether confidentiality should be breached. Such matters include:
- whether members of the public are likely to be affected;
- whether corrective action is being taken;
- possibility of repetition;
- the gravity of the matter;
- the presence of a general ethos of disregarding the law;
- reliability and quality of information available and the degree of suspicion; and
- legal protection for breach of duty of confidentiality.
About the authors
John Mongelard is an ICAEW Technical Manager focused on risk and regulation. Sophie Wales is the ICAEW Director of Tax, Ethics & Law Group.