The Financial Conduct Authority has pledged to improve its handling of market sensitive information following an external review into a communication blunder, which caused insurers share prices fall sharply.
In March, following a telephone briefing with the FCA, the Daily Telegraph reported that the regulator planned to review legacy pension products amid concerns that these offered poor value for money. The report's suggestion that the FCA could demand the removal of exit fees from pension products caused shares in top insurance companies to plummet.
In the wake of the gaffe, the FCA appointed Simon Davis, a partner in the law firm Clifford Chance, to review the incident and make recommendations.
Publishing his findings yesterday, Davis concluded the communications strategy around the planned insurance review was well intentioned but '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.'
The FCA placed too much focus on securing a prominent slot for the story and too little on the market-sensitivity of the information, Davis's 226-page report said. Once the story had been published and had begun to alarm insurance companies, poor internal communications at the FCA made it slow to react and clarify its position.
Davis recommended that the FCA abandon the practice of 'pre-briefing' journalists on its thematic reviews. If they should continue, then the issue of price sensitivity should be addressed in advance and the briefing only take place if the relevant team is satisfied there are no issues.
'The approach at all times should err on the side of caution,' he concluded.
FCA chair John Griffith-Jones thanked Davis for his 'comprehensive and rigorous' report'.
Earlier this week, the FCA announced that head of regulation Clive Adamson and director of communications Zitah McMillan would be leaving the organisation as part of a restructure. Both Adamson and McMillan were criticised in Davis's report.
Griffith-Jones said the authority's board fully accepted Davis' criticisms and apologised on behalf of the FCA for mistakes and shortcomings in systems and controls.
'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.'
Griffith-Jones added the FCA had fallen short of the standards it sets itself.
'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.'
Otto Thoresen, director general of the Association of British Insurers, commented: '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.'