Today, the FCA published the report of the independent inquiry, conducted by Simon Davis of Clifford Chance, into the handling of an announcement regarding a review of the life insurance industry.
Clifford Chance was highly critical of the FCA’s handling of the life insurance review press briefing, stating the regulator’s manner was “high risk”, “poorly supervised” and “inadequately controlled”.
Andrew Tyrie, chairman of the Treasury Committee, said the report tells the story of the FCA “pursuing the wrong strategy in the wrong way”.
He said: “The catalogue of errors made across the organisation is shocking – and some of the errors went to the top.
“The FCA Board originally intended to hold an internal inquiry, with some ‘external support’. This was plainly unacceptable – the regulator could not be permitted to investigate its own misconduct.
“I immediately pressed, on behalf of the Treasury Committee, for a fully independent inquiry led by a demonstrably impartial figure. It is now abundantly clear that this was needed.”
“The FCA has fallen well below the standards it requires of the firms it regulates”, Mr Tyrie added, stating that Mr Davis concluded that the body created a “false market” which caused “considerable market uncertainty, worry for many consumers and some lasting damage”.
He said: “The Committee will, among many other things, examine whether these errors were a one-off or whether they reveal something amiss, perhaps seriously amiss, with the standards and culture of the FCA. We will also examine remedies, both those proposed or already announced, and others.”
Simon Morris, partner at law firm CMS, described the blunder as a “sorry tale of a coverage-hungry regulator acting recklessly in pursuit of a favourable press story”.
He pointed out the FCA did not seem to “give a moment’s thought” whether the information was price sensitive, “sloppily briefed a journalist” and “was completely ambushed” when the story came out.
Mr Morris said: “A bank or insurer that did this with a price-sensitive announcement would probably be fined £10m and have its chief executive removed. Not the FCA.
“This episode leaves the FCA somewhat diminished. Like its predecessor the FCA, it seeks to project an image of boldness and competence which lasts until it is wrong footed by its own ineptitude.
“The collapse of Northern Rock and RBS showed up the weaknesses in the FSA’s supervision model – the Davis report is more worrying, showing flaws in the FCA’s whole approach to governance.”
Richard Burger, partner at City law firm RPC, was more positive, stating that the report has proven that the FCA is an accountable body and its actions “can and should” be subject to independent scrutiny, comment and challenge.
He added that the FCA will now have to play “much closer attention” to how its communications are interpreted by the equity and debt markets”.
Mr Burger said: “However, this report is not going to force the FCA into a change of approach and start soft-pedalling on the financial services sector.
“Whilst this report may impact how they undertake corporate communications it is going to have little effect on their overall strategy of imposing blockbuster fines and pursuing a policy of very active intervention in the financial services sector.”
“There is a continued sense of exasperation within the FCA at the conduct of the financial services industry and that will long outlive any short term concern they have over this report.”
The Treasury Committee will be holding an evidence session with Mr Davis, partner at Clifford Chance, this afternoon.
donia.o’loughlin@ft.com
