FCA agrees to annual board review after closed-book blunder

In March 2014, former FCA director Clive Adamson announced a probe into closed-book policies dating back to the 1970s, causing shares of major insurance companies to drop by up to 22% before the review was clarified.

It was reported that the FCA would investigate companies' high exit charges, when they only intended to gather information surrounding the way in which customers subject to those charges were being treated.

Clifford Chance partner Simon Davis published a report in December which criticised the way the FCA handled the information, and the length of time the firm took to clarify the review.

The Treasury Select Committee's report, published in March, concluded that failures took place in multiple divisions of the FCA and at senior as well as junior levels, and that that this must be the responsibility of the Executive Committee. The report said that "if the Executive Committee has failed properly to discharge its responsibilities, then the Board has consequently failed in its duty to oversee and challenge the Executive Committee effectively. It is also clear from the evidence that the Board as a whole failed in its duty to identify and manage risk."

In its response, the FCA said that it had "begun, and in many cases completed" work to address the recommendations made in the Davis report, including distributing a new Press Office Handbook which includes "clear guidance on handling price-sensitive information", and tailored training sessions for all staff.

The FCA added:

"It is established practice in the FCA not to pre-brief information that is price sensitive. As the Davis Review found, we fell short because we did not identify that the information we briefed had the potential to be price sensitive. One of the emphases of the training... is to clearly establish for all staff that a wide range of information we handle or create has the potential to be price sensitive."

Responding to the Committee's recommendation that ‘the Board must, as a matter of urgency, commission an external organisation to conduct a review of its practices and effectiveness, the FCA said:

"The Board agrees that as a matter of good corporate governance it is important that its effectiveness is regularly reviewed, and has agreed it will do so on an annual basis.

"The Board has further decided to commission an external review every other year, with an internal review taking place in alternate years."

Commenting on the FCA’s response, committee chair Andrew Tyrie said:

"It is welcome that the FCA now appears to have accepted the need for this. In particular, the FCA’s work to identify the individual responsibilities of its own senior managers and to clarify lines of accountability is a step in the right direction – an overdue one.

"The regulators should hold themselves to standards at least as high as those they require of the regulated community. The FCA’s standards have been poor, reflecting deep cultural problems in the regulator."