Back in March, 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.
In his report, Mr Davis criticised the way the FCA handled market sensitive information, and the length of time the firm took to clarify the review.
The FCA responded:
"The FCA Board fully accept 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.
"We are making a number of changes to our structure and operating model in order to sharpen our focus, which will also address some of the issues identified in the report."
Although the report found that "The FCA’s strategy of giving an advance briefing to The Telegraph in relation to the scope of the Life Insurance Review was well intentioned", the manner in which it was pursued was "high risk, poorly supervised and inadequately controlled" and the FCA’s reaction was "seriously inadequate and fell short of the standards expected of those it regulates."
Despite the report finding that Martin Wheatley, the Chief Executive of the FCA, was not given the closed-book briefing, the FCA have confirmed that he - alongside Director of Supervision, Clive Adamson, Director of Communications and International, Zitah McMillan and Director of Markets, David Lawton - will not be receiving a bonus for 2013/14.
The FCA added:
"Reflecting their collective responsibility, the 2013/14 bonus payments for all other members of Executive Committee have been reduced by 25%. Other disciplinary action has been completed as appropriate."
Wheatley has lost a maximum bonus of £115,000, while Adamson has lost a bonus of up to £72,750. On Monday, the FCA revealed that Clive Adamson, Zitah McMillan and Victoria Raffe will be leaving the organisation as part of structural changes.
The FCA have said that they are already working on recommendations set out in the report to improve practices within the firm, and that "substantial improvement in the procedures relating to the identification, control and release of price sensitive information" has already been made.
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 we are now implementing them.
“The FCA non-executive directors would like to thank Simon Davis for his thorough investigation. As a regulator we hold ourselves to the highest standards and in this case we fell short. I am determined the FCA will learn the lessons and we will do our utmost to ensure that a situation like this will never happen again.”
Commenting on the report, Andrew Tyrie MP, Chairman of the Treasury 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 Board originally intended to hold an internal inquiry, with some ‘external support’. This was plainly unacceptable – the regulator could not be permitted to investigate its own misconduct. I immediately pressed, on behalf of the Treasury Committee, for a fully independent inquiry led by a demonstrably impartial figure. It is now abundantly clear that this was needed.
“The FCA has fallen well below the standards it requires of the firms it regulates. Mr Davis has concluded that the body comprising the UK listing authority, in premeditated briefing, created a false market—causing considerable market uncertainty, worry for many consumers and some lasting damage.
“The Committee will, among many other things, examine whether these errors were a one-off or whether they reveal something amiss, perhaps seriously amiss, with the standards and culture of the FCA. We will also examine remedies, both those proposed or already announced, and others.”
Otto Thoresen, Director General Association of British Insurers, said:
“We welcome the publication of Simon Davis’ Inquiry into the FCA’s handling of publicity surrounding their Business Plan earlier this year.
“There are comprehensive FCA rules about the treatment of market-sensitive information, and it is important for the confidence of the markets that it should always be treated with the utmost care.
“The ABI is committed to a good working relationship with our regulators and we respect the regulators’ need to make sound judgements without undue interference. We also welcome the fact that the FCA has worked hard to keep communications open with the insurance industry and hope that this will continue. We make every effort to ensure the necessary flow of information between the regulator and the regulated, and we will continue to work hard to deliver our part in that essential dialogue in the future.”
