How whistleblowers are treated and protected is an increasingly hot topic in Europe after Howard Wilkinson, a Briton, helped expose a 200 billion euro (174 billion pounds) money laundering scandal at Denmark's Danske Bank.

Two years after new rules came into effect in Britain to manage and protect whistleblowers, the Financial Conduct Authority (FCA) said some banks should improve how they document whistleblowing investigations and should differentiate training programmes for staff, managers and internal investigators.

"The senior management and board of firms are responsible for clearly communicating and fostering a culture that welcomes discussion and challenge, so that wrongdoing is identified early and addressed promptly to stop actual or potential harm developing," the FCA said in a statement.

"We expect the senior management of firms to oversee and ensure that their firm has fully considered and implemented effective whistleblowing arrangements (and) continuously assess how the arrangements are working in practice."

The FCA review of whistleblowing procedures was published on the day Lloyds Banking Group settled a drawn-out case over how it had handled a report by a one-time employee who had alleged former bosses had concealed a vast fraud at one branch.

The bank apologised to Sally Masterton, a former senior risk officer at Lloyds, who left the bank in 2014 after documenting her concerns in a report, and said that it had agreed to pay her undisclosed financial compensation.

A new cross-party group of British lawmakers, the All-Party Parliamentary Group on Whistleblowing, was registered in August to propose best-in-class whistleblower legislation to parliament.

It will hear testimony from whistleblowers and experts from around the world and is expected to again consider arguments for financial incentives for whistleblowers, given the prominence of the North American "bounty programmes" that have paid tipsters worldwide around $6.5 billion.

Britain has traditionally been reluctant to pay for information, with regulators arguing that cash incentives are unlikely to increase the number of quality tip-offs.

(Reporting by Kirstin Ridley; Editing by Mark Heinrich)

By Kirstin Ridley