Following the high-profile inquiry carried out by Clifford Chance litigation partner Simon Davis, the keenly awaited report on the Financial Conduct Authority’s (FCA) behaviour in leaking a business plan to The Telegraph has found failures that ‘fell short of the standards expected of those it regulates’.
The FCA appointed Davis in April to conduct an independent inquiry into the handling of the body’s botched announcement of an investigation into the insurance industry. The inquiry looked into events leading up to and following the publication of its business plan to review certain long-term life assurance products on the 27 and 28 March, and which was revealed to The Telegraph causing £3bn to be wiped off share values.
Having interviewed multiple employees and reviewed 40,000 paper and electronic documents, the report found the FCA’s strategy of giving an advance briefing to The Telegraph was ‘well-intentioned’, and the FCA had sought to avoid the nature and scope of the Life Insurance Review being misunderstood when it was announced for the first time. The strategy and manner in which it was pursued was, however, described as ‘high risk, poorly supervised and inadequately controlled. When it went wrong, the FCA’s reaction was seriously inadequate and fell short of the standards expected of those it regulates’.
Davis recommended that there be ‘substantial improvement’ in the procedures relating to the ‘identification, control and release of price-sensitive information, and the market abuse implications of a wrong decision. This should include, not only centralised policies and training, but also detailed procedures tailored for the relevant business team.’ There are further recommendations to provide staff with scenario-based training, ensure specific limitations on those that can access price-sensitive information and disseminate it, the creation of insider lists in appropriate cases, and the carrying out of leak inquiries. This led to Davis recommending the FCA consult with the Prudential Regulation Authority and other relevant parties to understand comparable policies and training they have in place.
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 that were made and the shortcomings in systems and controls which his report has revealed.
‘Mr Davis also makes a number of recommendations about changes to our systems, processes and ways of working. We accept all of his recommendations and I can confirm that we are now implementing them.’
The report follows the drastic shakeup of the FCA’s executive positions, a move which will include the departure of three top officials, Clive Adamson, Zitah McMillan and Victoria Raffe, who are set to leave next year. The structural overhaul included grouping its current authorisations and supervisions divisions, and tasking director of enforcement Tracey McDermott with managing the transition.
sarah.downey@legalease.co.uk
For the full report, click here.
