The Treasury Committee has today released its own report which criticises the FCA for continuing to offer ‘pre-briefings’, and the 'strategic restructuring' which led to Clive Adamson and Zitah McMillan leaving the regulator.
Chairman of the Treasury Committee, Andrew Tyrie MP, said:
“The FCA made a serious error in March last year. By breaching its own listing rules, it created a false market in life insurance shares. In doing so it put its own statutory objectives at risk. The evidence from this episode suggests that problems may still exist at the FCA. It is not yet clear to the Committee that the FCA has fully grasped this.
“Had a regulated firm behaved as the FCA did last March, the FCA is likely to have imposed a considerable fine. There seemed to be one rule for the regulator, and another for the regulated.”
The report expressed concern that Martin Wheatley refuses to acknowledge that the FCA’s communications strategy was inevitably to blame for the drop in life insurance shares, and that the FCA has not ruled out giving ‘exclusives’ to individual journalists, which may be published at a time of the journalist’s choosing.
Andrew Tyrie said:
“There are advantages in the FCA seeking media coverage for its work. This can be of particular benefit to consumers, helping to inform them about scams and other risks. But the FCA’s strategy has in some instances gone too far. It is concerning that the FCA still does not acknowledge that it was flawed.
“The FCA should refrain from offering ‘pre-briefings’ or ‘exclusives’ on forthcoming FCA announcements altogether, unless it publishes those announcements at the same time that any stories appear in the media.”
The report also addressed the departures of Clive Adamson and Zitah McMillan adding that the FCA made no mention of Simon Davis’s investigation when it announced its new strategic approach, and a major restructuring, just two days before it published Mr Davis’s report. The Committee said that the 'strategic review' has the appearance of being rushed out in attempt to mitigate the effect of the publication of the Davis report on the FCA’s reputation, i.e. Adamson and McMillan were being made to take the blame as they were heavily involved in the pre-briefing incident.
Andrew Tyrie expanded:
“Clive Adamson and Zitah McMillan were the two senior executives most heavily criticised by Simon Davis in his report. Yet their departures from the organisation, announced by the FCA two days before the publication of the Davis Report, were presented as being unrelated to the incident. This might reasonably lead to suspicions that Mr Adamson and Ms McMillan were being made to take the blame in a contrived media-handling operation for the mishandled pre-briefing, while allowing the FCA to claim that this was not the case.”
Another focus of the Committee's report was the FCA Board's announcement that the Board itself should conduct the inquiry into the events. According to Andrew Tyrie, "the FCA agreed to an independent report only after vigorous requests from MPs and the Treasury among others." The FCA also accepted Mr Davis’s invitation to read his report in full, and took the opportunity to suggest to Mr Davis that he alter his recommendations.
He added:
“It was improper of the FCA Board to offer any views at all on his draft recommendations—in doing so, it risked creating the perception that Mr Davis’s independence had been compromised. The fact that the Board took the opportunity to comment on Mr Davis’s recommendations suggests that, even six months after the commencement of the inquiry, the Board still hadn’t understood the vital need for it to be, and be seen to be, wholly independent. ”
The report 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."
The suggestions set out for the FCA include:
- The Executive Committee should examine the FCA’s communication methods and poor working relationships between divisions;
- The non-executive members of the Board should investigate whether the FCA has a problem of inadequate sharing of expertise, and whether standards and culture contributed to the events of 27 and 28 March;
- The Board should commission an external review of its own effectiveness, particularly its approach to managing risk; and
- The FCA should produce a ‘Responsibilities Map’, as it expects banks to do, which sets out clearly where senior responsibility lies. The PRA should produce an equivalent document.
Andrew Tyrie concluded:
“The FCA seems to have lost sight of its overarching objective: to make sure that relevant markets work well. The Executive Committee failed to pay sufficient attention to the risk that its own communications could move the markets. When this risk materialised, they failed to act with sufficient urgency to put things right.
“It is not clear to the Committee that the FCA has considered seriously whether there might be wider problems – setting aside the detailed control failures identified by Mr Davis – that help to explain how such a serious incident was allowed to occur. In order for the FCA to put this episode fully behind it, it will have to examine these issues in detail in the months ahead.
"The Treasury Committee has made some recommendations on how the FCA should go about this. In the light of the investigations – including into the FCA’s effectiveness and its standards and culture – proposed in this report, it will be for the Treasury Committee in the next Parliament to consider what further work is appropriate.”
