The Financial Conduct Authority (FCA) has come under fire from the industry and the government for the way it handled an announcement that it would be investigating around 30m sales by insurance companies.
The Daily Telegraph’s revelation of the FCA’s plans to investigate rocked the protection market for the second time in weeks. Coming soon after the changes to annuities announced in the Budget, the regulator’s mishandling of the announcement of its intention to investigate pensions, endowments, bonds and life insurance policies sold over the past four decades wiped as much as 20 per cent from the value of shares in companies such as Phoenix Group.
Clive Adamson, director of supervision at the FCA, said the regulator is investigating profits made by insurers from funds that are now closed to new business, which could mean pension providers are forced to allow savers to exit or switch to a better deal free of charge. It took the FCA six hours to clarify that it would not be seeking to retrospectively ban exit fees, which contributed to the recovery of share prices.
Elsewhere, the Association of British Insurers (ABI) has registered its dissatisfaction with the handling of the announcement. The ABI’s chair, Tidjane Thiam and its director general Otto Thoresen, wrote letters to the chancellor and to the FCA chair John Griffith-Jones, to urge a more collective approach when attempting to drive change in the insurance market.
This has increased perception of a growing rift between the FCA and the Treasury. Chancellor George Osborne expressed “profound concern” over how the matter was handled, and later told the Treasury Select Committee that it was an “egregious error” and that the FCA had allowed inaccurate information into the public domain. Mr Osborne said the Treasury would not interfere with the independent inquiry, headed by Simon Davis, litigator at law firm Clifford Chance.
The inquiry will aim to answer questions over why the regulator decided to brief just one journalist; who decided this was the right course of action; and why it was so slow to react to the sell off of shares.
Simon Webster, managing director of Facts & Figures Chartered Financial Planning in Ashford, Kent, sees it as bad news all round for the regulator. “The advisory community held the FSA in the lowest possible regard,” he said. “The FCA had been making encouraging noises and may continue to do so, but those of us left succeed despite regulation rather than because of it. I think the FCA is an embarrassment to the government, and its only saving grace being that it was Gordon Brown’s creature.”
Carl Melvin of Affluent Financial Planning in Renfrewshire sees the mis-step as double standards from the FCA. “If an IFA gives advice or takes action that results in financial loss for a client, the IFA is expected to compensate the client. How would the PRA or FCA treat a bank or advisory firm that had mishandled such an issue?” he said.
bethany.rutter@ft.com
