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The FCA’s Market Blunder

Monday, 23 June 2014

The Financial Conduct Authority (FCA) was heralded as a watchdog with teeth when it replaced the FSA in April 2013.

Compared to its predecessor, it has certainly gained a reputation for being far more pro-active in regulating the conduct of financial firms.

Unfortunately for the FCA, it has shown that it is not immune to making blunders that shift markets when it released information about an investigation into the insurance industry in March.

The incident brought a rebuke from Government, highlighting the heightened sensitivity around financial markets in the wake of the financial crisis.

The Insurance Investigation Leak

The FCA planned to investigate life insurance policies, endowment policies and pensions issued between 1970 and 2000. The leak to a national newspaper on Friday 28 March suggested that the investigation would be rigorous in nature causing shares in some major insurers to fall by around 20 per cent.

The FCA responded later in the day to clarify the actual nature of the proposed investigation and to calm investors. Shares later recovered most of their losses. The incident was a major embarrassment for the FCA which was nearing its first anniversary.

At the time, the head of the FCA Martin Wheatley took full responsibility for the event which was described by Andrew Tyrie, the Head of the Treasury Select Committee as an, “extraordinary blunder”.

Further criticism followed from the Chancellor George Osborn who wrote in a letter to FCA chairman John Griffith-Jones, "These events go to the heart of the FCA's responsibility for the integrity and good order of the UK's financial markets, and have been damaging both to the FCA as an institution and to the UK's reputation for regulatory stability and competence."

Price Sensitive Information

Apart from demonstrating the risks of mishandling price sensitive information for all stakeholders in financial markets, the incident highlighted issues that have dogged numerous financial organisations.

An external review of the watchdog was established to consider authorisations in relation to the release of information, the timely clarification of inaccurate information, the disruption caused to markets, accountability and subsequent disciplinary action. These are all issues familiar to other financial organisations that have got things wrong.

As Martin Wheatley himself counselled "This was clearly not the FCA's finest hour, but it does serve as a timely reminder to all parties involved of the care and thought that is needed when handling significant amounts of information we hold as part of going about our business”.

Comment

The sensitivity surrounding any perceived failures in financial organisations is still very much heightened. Although it was the FCA that rightly faced criticism in these circumstances, it is unlikely to quell the watchdog’s enthusiasm for tackling misconduct elsewhere.

For specialist regulatory advice or FCA investigations contact James Crighton jcrighton@rollingsons.co.uk or telephone 0207 611 4848.

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