Wednesday 1 April 2015

Financial Conduct Authority Made a ‘Serious Error’ on Insurance Review, Panel Says

The New York Times

LONDON — The Financial Conduct Authority of Britain made a “serious error” in providing an exclusive briefing to a newspaper reporter last year on its plans to review the life insurance industry, and in not responding quickly after the report inadvertently sent British insurance stocks down sharply, a parliamentary committee said on Friday.
The authority, which is the country’s top financial regulator, announced in March 2014 that it would review whether longstanding customers had been treated fairly by their insurers.
The plans were first reported by the British newspaper The Daily Telegraph and were confirmed by the regulator after insurance stocks fell sharply on March 28, 2014.
In a report issued on Friday, the Treasury Select Committee of the British Parliament said the Financial Conduct Authority had failed to live up to the standards it requires of listed companies, and had created a “major self-inflicted distraction” from its core purpose of ensuring that markets operate properly in Britain.
“By breaching its own listing rules, it created a false market in life insurance shares,” Andrew Tyrie, the chairman of the committee, said in a news release. “In doing so, it put its own statutory objectives at risk.”
“The evidence from this episode suggests that problems may still exist at the F.C.A.,” Mr. Tyrie said. “It is not yet clear to the committee that the F.C.A. has fully grasped this.”
An independent review of the authority’s actions, conducted by the law firm Clifford Chance, found that the agency’s sharing of the exclusive briefing had been “well intentioned,” as it wanted to avoid confusion when the news was officially announced on March 31, 2014.
But the law firm found that the execution of the plan was botched, particularly the authority’s slow reaction to events after stocks began to fall.
Clifford Chance found that the agency had not anticipated the market’s reaction to the article, which was published on The Telegraph’s website on March 27, 2014, and appeared in its print editions the next morning.
Insurance stocks fell significantly when the London Stock Exchange opened on March 28, 2014, but the authority did not issue a clarifying statement to the market until 2:27 p.m. that day, according to the Clifford Chance report.
In December, the Financial Conduct Authority said that four of its senior leaders, including its chief executive, Martin Wheatley, would forgo bonuses for the 2013-14 fiscal year, and that other members of its executive committee would have their bonuses reduced by 25 percent.
The regulator also said at the time that it had made changes in its communications policies that Clifford Chance had recommended, including examining its handling of “price sensitive information,” its external communications strategy and its framework for responding to crises.
It has committed to address the failings identified in the Clifford Chance report.
In its report on Friday, the Treasury committee said the findings by Clifford Chance left the overall impression that the Financial Conduct Authority was a “dysfunctional organization.”
“It is not clear that the F.C.A. has yet fully grasped the extent of the failings revealed” by the Clifford Chance report, the Treasury committee said.
It added that the Financial Conduct Authority’s executive committee should examine its communications methods and “poor working relationships” between its divisions, and that the nonexecutive members of its board should examine whether the regulator has a problem “of inadequate sharing of expertise” internally.
The committee also recommended that the regulator’s board commission an external review of its effectiveness.
“If the F.C.A. is to avoid similar events in future, it must not only take more care to identify price-sensitive announcements, but consider how its briefing strategy could lead to non-price-sensitive releases becoming price-sensitive,” the committee said. “It is not clear to the committee, in light of Mr. Wheatley’s evidence, that the F.C.A. has understood this important distinction.”

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