The City regulator has been censured for adopting a high-risk and inadequately controlled strategy when a press briefing about its review of the life insurance industry led to £3bn being wiped off the value of insurance company shares.
Top officials at the Financial Conduct Authority, including its chief executive, Martin Wheatley, are to lose their bonuses following the publication of a damning report into the incident, when the Daily Telegraph was briefed about the watchdog’s plan to conduct a sweeping review of insurance policies.
A report by Simon Davis, a lawyer at Clifford Chance, criticised the FCA for its advance briefing to the newspaper and the way it handled the fallout.
The FCA did not issue a clarifying statement until 2.27pm on Friday 28 March – 14 hours after the information was published, at 10pm the previous night. That statement said that 30m policies were not going to be subject to the review, as had been reported.
The FCA chairman, John Griffith-Jones, said: “The board fully accepts Mr Davis’s criticisms and on behalf of the FCA we apologise for the mistakes that were made and the shortcomings ... his report has revealed.”
However, Griffith-Jones insisted the FCA board still backed Wheatley, who had been set to receive a bonus of up to £115,000. “I, and so does my board, have total confidence in Martin Wheatley,” he said.
The investigation, which cost £3.8m with more than half going to Clifford Chance, was ordered by George Osborne, who had expressed concern about the debacle.
After the Davis report was published, the chancellor said: “A strong organisation learns from its mistakes and improves as a result. I’m confident that the FCA will do the same.”
Davis set out a series of errors made by the FCA and a lack of understanding that the information being released could be market-sensitive. He found there was a false and probably disorderly market in insurance company shares, even though the FCA’s strategy of briefing the Telegraph was well-intentioned.
“The manner in which it was pursued was, however, high-risk, poorly supervised and inadequately controlled,” the report said.
“When it went wrong, the FCA’s reaction was seriously inadequate and fell short of the standards of those it regulates.”
Earlier this week, the FCA announced the departures of Zitah McMillan, head of communications, and Clive Adamson, director of supervision. The FCA said the departures and the report were unconnected.
They are being denied bonuses, along with Wheatley and the director of markets, David Lawton. The bonuses of all executive committee members are to be cut by 25%.
Davis’s detailed 226-page report reveals that Adamson, who was quoted in the Telegraph, never spoke directly to the paper and did not know his quotes would appear. Nor had he read the article when he replied to an email by an unnamed FCA media manager at 7.41am saying: “thanks looks good”.
At 8am, when the stock market opened, insurance company share prices started falling rapidly. But it was not until after 10am that McMillan was phoned at home by a senior official at the FCA and asked if there were any problems. She was not told of any concerns about the accuracy of the article until after that call.
Davis said Wheatley was disadvantaged by Adamson, Lawson and McMillan but should take credit for insisting that a clarifying announcement be made. Even so, Wheatley “should have instead insisted that all relevant individuals met in person or by telephone urgently to finalise the clarifying statement”.
The Telegraph interview was actually given by Nick Poyntz-Wright, director of long-term savings, and the reporter was told to attribute the quotes to Adamson. There was no criticism of the newspaper.
The FCA admitted it received nine complaints requesting compensation as a result of the share price movements. “The legal advice we have is no compensation is due,” said Griffith-Jones.
Appearing before MPs on the Treasury select committee, Davis was asked about one of his recommendations to seek approval of articles in the future. “I’m not advocating muzzling of the press in any way,” Davis said.
Andrew Tyrie, who chairs the committee, 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.”
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