The Financial Conduct Authority must “make good the damage” to its integrity after it allowed what some have branded a ‘disorderly market’ to persist for most of Friday following a briefing given by an executive to The Telegraph, the chancellor has warned.
In a letter to FCA chairman John Griffith-Jones, George Osborne said that he was “profoundly concerned” that a pre-briefing about a forthcoming FCA review caused “considerable disruption” in the trading of insurance shares.
Mr Osborne said: “These events go to the heart of the FCA’s responsibility for the integrity and good order of UK financial markets, and have been damaging both to the FCA as an institution and to [the] UK’s reputation for regulation stability and competence.
“I expect you and the FCA board to do everything possible to make good that damage.”
On Friday (28 March), the Telegraph published an interview with Clive Adamson, FCA director of supervision, who told the paper the regulator is investigating the level of profits made by insurers from funds closed to new business.
The Telegraph said this could force pension providers to allow savers that have taken out some 30m policies over the past four decades to exit or switch to a better deal for free over exit fee concerns.
A market sell-off saw shares in insurance firms plummet by as much as 20 per cent for the second time in as many weeks, but they later recovered after the FCA issued a clarification.
The FCA board said it is to hold an inquiry into the affair to be conducted by an independent law firm.
Mr Osborne said: “The starting point must be that the FCA holds itself to at least as high standards as it would expect of a listed company... and should hold its own staff to the same standards it would expect of any approved person.
“Questions such as the need for disciplinary action for individuals should be considered... in this spirit.”
The Treasury Commitee has also announced it will hold an evidence session with the independent reviewer who will lead the inquiry into the FCA’s treatment of market sensitive information.
Andrew Tyrie, TSC chairman, said: “The chancellor has today made clear that he shares the committee’s concerns over what appears to be an extraordinary blunder. As he says, these events go to the heart of the FCA’s responsibilities. The reputation of the regulator is at stake.
“The Treasury Committee will want to see the independent reviewer before he or she gets to work and before the terms of reference are finalised.
“The committee will want assurances that the terms of reference provide no barriers to getting to the bottom of what has happened. The chancellor has outlined some areas he would like to see addressed; there may be others.
“The Treasury Committee will also want assurances that this work will be conducted wholly independently, of the FCA, the industry or anyone else. The reviewer’s report should be published in full.”
Simon Morris, partner at law firm CMS, added: “This demonstrates that the FCA has the power to move markets and must be careful what it says, especially when a regulatory objective is to achieve stable and orderly markets.
“Frankly, if a regulated firm had behave in a similar manner it would be accused of market abuse.”
Martin Wheatley, FCA chief executive, said earlier that he expects to be personally affected by the inquiry amid calls for him to step down.
Mr Osborne said the review must address:
• why and with whose knowledge this briefing was given, “particularly to a single journalist;
• why the FCA’s clarification statement was not issued earlier;
• what dialogue took place with individual firms before the clarification statement;
• to what extent this pre-briefing is an isolated exception;
• broader lessons these events hold for the regulator’s approach more generally to the media; and
• where senior accountability should lie and what disciplinary action should be taken.
