Shamed: the City's most powerful watchdog endures its darkest day

FCA briefed hugely price sensitive plan to newspaper, ignored the warnings of internal experts and dithered for hours as share prices plunged

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The Independent Online

The credibility of Britain’s financial regulator was thrown into doubt yesterday after a damning report revealed how a catalogue of failings wiped billions off the value of insurers in one day.

Simon Davis, of law firm Clifford Chance, accused the Financial Conduct Authority of being “high risk, poorly supervised and inadequately controlled” by deciding to brief The Daily Telegraph about plans to probe 30 million pension and investment policies dating back to the 1970s. He said this created a false market on 28 March, which caused the value of companies such as Aviva, Legal & General and Prudential to plunge £3bn in one day, even though the FCA later clarified that the probe would be narrower than first thought.

Mr Davis said senior supervisors at the FCA had become “increasingly nervous” about holding the briefing, following the Budget earlier that month which also hit the sector. However, it still went ahead, even though emails from the supervisory team warned: “My view is that we shouldn’t do a press story on this ...” and “My view is we should tell [the Media Relations team] we don’t want this coverage to happen”.

Mr Davis said: “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...When it went wrong, the FCA’s reaction fell short of the standards expected of those it regulates.”

The FCA spent almost £3.8m on the report following widespread criticism that included a rebuke from Chancellor George Osborne. The costs include £2m in fees to Clifford Chance and a further £1m to law firm Kingsley Napley for advising the FCA’s staff.

Mr 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 in an email sent to him 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. However, it adds: “The Media Associate and his superior, a manager in the Media Relations Team, told us that she did know.” Overall, it claims FCA chief executive Martin Wheatley was “disadvantaged” by these failures but says its board must take ultimate responsibility. Mr Wheatley stood to make up to £115,00; Mr Adamson, Ms McMillan and head of markets David Lawton will not receive any bonus for 2013-14.

The watchdog’s chairman, John Griffith-Jones, said: “The board fully accepts Mr Davis’s criticisms …  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 reforms outlined in the Budget, in which the Chancellor revealed that savers will no longer be forced to buy an annuity when they retire. That shaved £4.5bn off the value of the industry in one afternoon.

Andrew Tyrie, chairman of the House of Commons Treasury Select Committee, said: “The Davis report tells the story of an FCA pursuing the wrong strategy in the wrong way. The catalogue of errors made across the organisation is shocking – and some of the errors went to the top.

“The FCA has fallen well below the standards it requires of the firms it regulates.”