City watchdog lambasted over insurance fiasco that wiped billions of pounds from industry

Financial Conduct Authority humiliated over botched announcement that caused the value of Britain’s insurers to plunge £3 billion in one day

Britain's financial watchdog was chastised in a damning report accusing it of being “high risk, poorly supervised and inadequately controlled” after wiping billions off the value of the City’s insurers.

Clifford Chance lawyer Simon Davis said the Financial Conduct Authority created a false market on March 28 by briefing The Daily Telegraph about plans to probe 30 million pension and investment policies dating back to the Seventies.

The botched announcement caused the value of Britain’s biggest insurers to plunge £3 billion in one day, even though the FCA later clarified that the probe would be narrower than first thought.

“It appears that a significant number of investors in life insurance sector shares based their investment decisions on the widespread misapprehension of the nature and scope of the Life Insurance Review,” Davis said. “When it went wrong, the FCA’s reaction fell short of the standards expected of those it regulates.”

Davis placed much of the blame on the FCA’s former director of supervision Clive Adamson, who was quoted in the original newspaper report and has since left his £364,000-a-year job.

In particular, he is criticised for not reading an online version of the article before the markets opened and replying: “Thanks — looks good.”

The report also details claims by the FCA’s former director of communications Zitah McMillan that “she did not know of or authorise” the briefing.

Overall, it claims FCA chief executive Martin Wheatley was “disadvantaged” by these failures but says its board must take ultimate responsibility.

In response, FCA chairman, John Griffith-Jones said: “Simon Davis has produced a 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.

The board fully accepts Mr Davis’ criticisms and on behalf of the FCA we apologise for the mistakes and shortcomings in systems and controls which his report has revealed.”

The investigation into the debacle caps an eventful year for the insurance industry, which is still coming to terms with radical reforms outlined in March’s Budget, in which Chancellor George Osborne revealed that savers will no longer be forced to buy an annuity when they retire, shaving £4.5 billion off the value of the industry in one afternoon.