RegulationDec 10 2014

FCA review labels regulator ‘seriously inadequate’

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Law firm Clifford Chance has been highly critical of the Financial Conduct Authority’s handling of the life insurance review press briefing, stating the regulator’s manner was “high risk”, “poorly supervised” and “inadequately controlled”.

Clifford Chance was appointed in April to conduct an independent investigation into the handling of the FCA’s botched announcement of a major probe into long-standing life and pensions policies.

The inquiry examined the events leading up to and following the publication of the FCA’s intention to review certain long-term life assurance products on 27 and 28 March on the Telegraph website and the Daily Telegraph newspaper.

Following the article’s publication, billions of pounds were wiped from listed insurance companies, with the market panic only subsiding when the FCA eventually published a clarification in response to fierce lobbying more than six hours after markets opened.

The FCA eventually issued a statement in which it said it ‘acknowledged’ the concerns of the market and that it would be conducting an investigation involving an unnamed external law firm.

Simon Davis, partner at Clifford Chance and author of the report, described the FCA’s strategy of giving an advance briefing to the Telegraph in relation to the scope of the life insurance review as “well-intentioned”.

“The strategy and the manner in which it was pursued was however, high risk, poorly supervised and inadequately controlled, When it went wrong the FCA’s reaction was seriously inadequate and fell short of the standards expected of those it regulates.”

The FCA’s supervision department said it had concerns that the nature and scope of the review would be misunderstood.

It was wrongly believed that the FCA would address high exit charges in the life insurance review, whereas the regulator was only intending to gather information to understand whether a problem existed in relation to the way in which customers subject to those charges were being treated, the report said.

The review found that given the sensitivities for the life industry, there was at least a risk that the contents of the business plan, concerning the life insurance review, were price sensitive.

“This possibility was not addressed, nor was it addressed in relation to the other contents of the business plan. Furthermore the issue of price sensitive information was not addressed when any advance briefings of the business plan were considered,” stated Clifford Chance’s report.

John Griffith-Jones, FCA chairman, praised Mr Davis for his “comprehensive and rigorous report in which he makes a number of criticisms of the way the FCA handled the launch of the 2014/15 business plan”.

He said: “The board fully accepts Mr Davis’ criticisms and on behalf of the FCA we apologise for the mistakes that were made and the shortcomings in systems and controls which his report has revealed.

“Mr Davis also makes a number of recommendations about changes to our systems, processes and ways of working. We accept all of his recommendations and I can confirm that we are now implementing them.

“The FCA non-executive directors would like to thank Simon Davis for his thorough investigation. As a regulator we hold ourselves to the highest standards and in this case we fell short. I am determined the FCA will learn the lessons, and we will do our utmost to ensure that a situation like this will never happen again.”

donia.o’loughlin@ft.com