Too much chatter and not enough action hampers City watchdog

Outlook

It’s good to talk. Readers of a certain age may remember the old BT slogan, which now has a place in the Advertising Hall of Fame.

The shame of it is that it appears not to have penetrated the consciousness of some of Britain’s financial regulators in the same way that it did everyone else’s.

Over the years there have been a succession of mea culpas issued by the Financial Services Authority. Now the Financial Conduct Authority, billed as its dynamic successor body, is at it, publishing in full a report by city law firm Clifford Chance into its disastrous mishandling of the release of market sensitive investigation. The report paints a deeply unflattering picture. Behind the scenes of the shiny new City watchdog lurks the spectre of the Keystone Cops.

You probably know the background by now. As part of this year’s business plan, the FCA planned a review into millions of old life insurance policies to gauge whether their holders were being treated fairly. Not unreasonable, you might think. Concerned about how it would be perceived, however, a plan was hatched to brief The Daily Telegraph, with the aim of heading off any potential misunderstanding of its intent.

As we all now know, said briefing produced just what the watchdog had feared in the first place. Cue a rout on the stock market, as investors embarked on a headlong rush for the exits, fearing a full-scale review of millions of old life policies and a compensation cost that might make the £20bn or so shelled out to deal with the payment protection insurance scandal look like a rounding error. Yet the FCA appeared not to notice that it had set off a panic in the markets, taking several hours to work out that it had slipped up and that it needed to clarify its intentions. What was happening behind the scenes might be considered comedic were it not so serious.

It has been pointed out to me that the watchdog makes hundreds of decisions every day, most of them correctly, and that we really would be in trouble if that wasn’t the case. But that is the FCA’s job and this affair has shone a light on a veritable cascade of bad decisions that makes you wonder whether there isn’t more going on behind the scenes that should concern us.

Take the initial strategy of handing the Telegraph a drop. The supervisory division was having kittens about this, fearing – rightly as it turned out – the impact the review would have on a sector that already reeling from the Chancellor taking away one of its favourite earners (the requirement on pensioners to buy an annuity).

They were talking. It’s good to talk. But no one was listening. And an interview with a senior(ish) regulator went ahead, overseen by a relatively junior media handler, despite the import of the announcement. With quotes attributed to head of supervision Clive Adamson. Who wasn’t there.

But it gets worse. The unnamed press person thought the resulting article was a cracking yarn, if a bit sensational, and said as much in emails to the Telegraph journalist and to Mr Adamson.

Jolly good, was the latter’s response, despite the fact that he hadn’t read it. And that it had gone to press prior to the industry being briefed (something the original plan had called for).

Worse still, when the dam broke, and the shares crashed, and the insurance industry started having kittens, nothing was done about it. A number of named senior people were made aware of the situation. But they failed to recognise the scale of the problem, failed to see a need for clarification, failed to escalate it up the chain, failed to talk.

It wasn’t until the intervention of chief executive Martin Wheatley’s office that the watchdog started to move. But even then its torpor was painful to watch, a tree sloth trying to keep up with a coalition of cheetahs wearing rocket-powered backpacks.

Now there was too much talking, too much strategising, too much weighing of options, not enough doing.

This was just one mistake, say the FCA’s defenders. We’ve done some good things.

Up to a point, that’s true. In the credit column is its work on the deep corruption that has been festering in the City of London’s dark corners.

Then there is the crackdown on the spivs in suits who engage in market abuse that has been pursued with some vigour by Tracey McDermott, justly promoted in the shake up that has followed this ghastly affair.

The problem is the incompetence on display here has swept aside many of the gains that have been made. The regulator’s authority has been badly compromised. The next time a bank is fined, its spin doctors will point to the Clifford Chance report and suggest journalists compare it to the regulator’s decision notice on their employer’s misconduct. They will try to equate some of their own malpractice with the regulator’s poor practice.

It might be a false comparison. But they’ll do it all the same. Again and again.

So now bonuses for FCA bosses have been cancelled. Heads have rolled. Mr Adamson is seeking new challenges.

Apparently his departure had nothing to do with this. Zitah McMillan, the former Whitehall spin doctor who is bizarrely director of both communications and international, is also heading for pastures new. Probably no bad thing given she claimed not to know about the fateful interview, even though she should have, had she been doing her job. Her staff claimed that she did.

There has also been an acceptance of the report’s recommendations, that internal shake up, the usual apologies.

But does the regulator get it? I’m not at all sure. And if it doesn’t, we’ll be here again.