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George Osborne 'profoundly concerned' by FCA insurance leak George Osborne 'profoundly concerned' by FCA insurance leak
(about 9 hours later)
George Osborne has weighed into the row over the Financial Conduct Authority's botched announcement of a major insurance sector investigation, as the watchdog's embattled chief executive continues to resist calls to step down. George Osborne, on Tuesday told the Financial Conduct Authority it should consider disciplinary action against staff after last week's botched announcement of an investigation into the insurance sector.
In a letter to the FCA's chairman, John Griffith-Jones, the chancellor said he was "profoundly concerned" by the watchdog's leak of its insurance industry probe, which led to a heavy sell-off of insurance stocks and wiped billions of pounds off their stock market value last Friday. Putting renewed pressure on the new City watchdog's chief executive, Martin Wheatley, the chancellor used unusually strong language, saying he was profoundly concerned about the events that led to £6bn being wiped off the share prices of the UK's biggest insurance firms on Friday.
Osborne wrote: "These events go to the heart of the FCA's responsibilty for the integrity and good order of UK financial markets, and have been damaging both to the FCA as an institution and to UK's reputation for regulatory stability and competence." The share sell-off followed a senior FCA director Clive Adamson being quoted in the Daily Telegraph on plans to review 30m policies going back decades and the potential scrapping of exit fees on such policies. The story sent shudders through the stock market but the FCA then failed to clarify the scope of its inquiry until six hours after trading opened.
The FCA chief, Martin Wheatley admitted again on Tuesday morning that the organisation's intervention was not its "finest hour" – but said he did not consider resigning. "Yes, I will stay in my job. We've got a big job to do," he told BBC Radio 5 Live. Wheatley said he had no intention of resigning from the £600,000-a-year job he formally took on a year ago when the new regulator was broken out of the former Financial Services Authority. But Osborne's unexpected intervention on Tuesday led to speculation that senior FCA jobs were on the line.
The watchdog, which is taking over regulation of the consumer credit sector on Tuesday, is looking into how pension and life insurance firms are treating their longstanding customers. The chairman of the Treasury select committee, Andrew Tyrie, said the way the regulator released details of its investigation – via a press interview – appeared to be an "extraordinary blunder". The FCA has appointed a law firm to investigate the bungled announcement and has pledged to make its findings public. The Treasury – which appointed Wheatley – released a letter to the FCA chairman, John Griffith-Jones, in which Osborne wrote: "These events go to the heart of the FCA's responsibilty for the integrity and good order of UK financial markets, and have been damaging both to the FCA as an institution and to the UK's reputation for regulatory stability and competence."
Osborne welcomed the FCA board's decision to hold an inquiry, and stressed that it is "completely independent" – a point also made by the Association of British Insurers, which has written to the chancellor. The industry body described the events of last week as "very serious" and called for a longer term dialogue about how the government, industry and regulators can work together in future. Griffith-Jones replied to say that the FCA shared those concerns and would "do everything possible to address that harm by setting up an independent inquiry".
The watchdog leaked details of the insurance sector probe to the Daily Telegraph and refused to confirm the report for six hours. Eventually it confirmed that it will scrutinise investments in life funds that are closed to new business, known as "zombie fund" policies, which were sold by doorstep salesmen between the 1970s and 2000. As Osborne, who is to appear before Treasury select committee on Thursday to talk about the budget, also received a letter from the Association of British Insurers demanding that the promised investigation by the FCA was truly independent.
Quizzed about the financial crisis, Wheatley told BBC Radio 4 this morning that "in the period leading up to 2008 the [banking] industry lost its moral compass." Signed by Tidjane Thiam, the boss of Prudential who is also chair of the ABI, the letter called for the industry, its regulators and the government "sit down and have a longer term dialogue about how we can work together in future".
Wheatley, in a series of interviews on Tuesday to mark the moment that the FCA took on regulation of consumer credit, acknowledged that last Friday was not the regulator's "finest hour" – repeating what he had told a City audience on Monday. But he also said he did not consider resigning. "Yes, I will stay in my job. We've got a big job to do," he told BBC Radio 5 Live.
The FCA boss is expected to be in Westminster on Wednesday to host a reception with parliamentarians to explain the new approach to regulating the credit industry, previously overseen by the Office of Fair Trading.
Andrew Tyrie, chairman of the Treasury select committee, has already described last week's release of information as an "extraordinary blunder". He said he intended to call before his committee the individual appointed to oversee the FCA inquiry to explain the regulator's actions.
"The Treasury committee will want to see the independent reviewer before he or she gets to work and before the terms of reference are finalised," Tyrie said.
Osborne welcomed the FCA's decision to hold an inquiry, but set out seven questions to be answered, including who authorised the briefing and "where senior accountability should lie and what disciplinary action should be taken".