10.10.2016

Compulsory set-up of a whistleblower system - outsourcing possible


Once the Federal Council had approved on 13 May 2016 the law called "First Act Amending Financial Market Regulations" adopted by the Bundestag on 22 April 2016, the therein contained provisions that are relevant for the insurance industry became effective as of 2 July 2016.

Here, special attention should be given to the implementation of the provisions contained in Regulation (EU) No 596/2014 on Market Abuse. Pursuant to s. 23 para. 6 Insurance Supervision Act (VAG) it imposes on insurance companies the duty to set up an internal whistleblower system. Employees, so-called whistleblowers are given the possibility to report certain violations. This comprises potential or actual violations against the German Insurance Supervision Act (“VAG”), the VAG regulations and the European Regulation on Market Abuse as well as "possibly punishable acts". In order to protect the whistleblowers, anonymity is guaranteed. The aim is to contain or rather to suppress negative consequences of the misconduct of individual persons or entire companies.

According to the justification of the law (BT-Drs. 18/7482, p. 75) the whistleblower system must not mandatorily be organised within the company.

There it literally reads:

"The institution may set up an appropriate body both within and outside of the institution.
If the institution assigns a body outside of the institution, this law's general requirements regarding outsourcing apply.
In case of such an outsourcing it must be made sure that the confidentiality of the identity of the reporting employees is kept."

The addressed outsourcing is judicially rooted in s. 32 VAG.
Under the preconditions stated in s. 32 para. 2 VAG it is for example possible to outsource the "whistleblower body" to a law firm.

The government draft (BT-Drs. 18/7482) can be accessed here.