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FCA ignored Bank warnings on closed book probe

The FCA ignored warnings from the Bank of England about the impact on the market following its closed book probe briefing that sent insurers’ share prices plummeting.

Ahead of its business plan last week, the FCA briefed the Daily Telegraph about a review it was to carry out into closed book policies and the fair treatment of customers.

The report suggested 30 million policies would be reviewed, with the regulator considering scrapping punitive exit charges.

The news caused the share price of companies such as Resolution, Phoenix and Legal & General to drop significantly. The shares only started to recover lost ground when the FCA clarified at 2.30pm the extent of its planned review. It later said it would carry out an inquiry into its handling of the announcement, with the help of an external law firm.

The Sunday Times reports that Bank deputy governor and Prudential Regulation Authority chief executive Andrew Bailey called FCA chief executive Martin Wheatley shortly after 9am on the day of the Telegraph report, to press him to issue a statement about the review.

The newspaper says Bailey’s office called all morning, repeating requests for the FCA to make its true position clear.

The Financial Times quotes a source who says Bailey “went ballistic” at the FCA’s delay in clarifying the extent of the probe.

The Treasury is also thought to have applied pressure on the FCA . Senior Treasury official John Kingman, who was carrying out at interviews at the FCA’s offices, is said to have approached FCA chairman John Griffith-Jones and pressed him to order an independent legal review of what happened.

Chancellor George Osborne has written to Griffith-Jones expressing his “profound concern” about the FCA’s actions.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Dominic Thomas 7th April 2014 at 9:18 am

    The content of your story doesn’t reflect the headline. If your story is accurate, it would appear that what the FCA failed to do was issue a quick statement to the market as advised by Mr Bailey on the day, but I don’t really think that this can be classified as ignoring a warning. The regulator is all about process and even issuing a statement to the market involves a process. The question should surely focus on two key elements – is the process for issuing such a statement in such circumstances quick enough? and secondly why on earth was a senior figure at the regulator (not Mr Wheatley) allowed to make such unqualifed, ambiguous and wishful statements?

    In the real world, most of us would wish to see an end to exit penalties and restrictive practices that prevent clients/investors from moving out of poor and outdated forms of saving into something altogether more efficient that might improve liquidity and improve the outcomes for our clients. However some common sense needs to prevail, we cannot and should not judge the past by today’s much higher standards, it is very easy to forget the huge improvements that technology has made and will continue to make, revolutionising the financial services industry and reducing costs. In the days of expensive sales teams, with typed up or handwritten policy documents etc was a far more expensive time. You don’t get an oak tree without an acorn, everything has its time…. mobile phone / telephone / horse driven postal service / town cryer

  2. Isn’t is strange how Hector was able to issue an immediate response to the TSC request that the RDR be delayed for 12 months.

    Perhaps the FCA is more bogged down with process than its predecessor?

  3. This is only one little element in a long list of things the FCA and their predecessors have ignored – eg destruction of Independent Financial Advisers – and independent Financial Advisers Businesses – and the loss of employment to hundreds of thousands of employees – see Banks and insurance companies employee records .

  4. Julian Stevens 7th April 2014 at 9:47 am

    Surely, no review can be properly independent unless commissioned by a body independent of the FCA itself?

    That said, as I’ve written before, I don’t see what’s wrong with the FCA’s proposed review of all these legacy policies with:-

    1. heavy ongoing charges (which may be part of the original contract terms and therefore not alterable all these years on),

    2. limited ranges of poorly performing funds (because of reluctance to invest in quality fund managers) and

    3. punitive exit charges (which, in many cases, may well be entirely discretionary).

    Yes, the FCA may have bungled its announcement to the press of this proposed review but the terms of the review itself seem to me to be eminently reasonable. Then again, perhaps the FCA should have anticipated and/or consulted with some higher authority on the potential effects of such an announcement before letting the cat out of the bag. That higher authority may well have instructed the FCA to hold back or even mothball the plan altogether. If not, it would have come out anyway, sooner or later.

    All this highlights yet again the need for some sort of Statutory Independent Regulatory Oversight Committee, with which the FCA should be obliged to consult with a view to averting yet another motorway pile-up such as this one as a result of having allowed a loose cannon such as Clive Adamson to have gone off half-cocked.

  5. The Truth is that if all those with “poor” policies were compensated then not One life Office would survive.
    There is no commercially acceptable policy but to draw a line under past bad practice and move on. The FCA were mad to even think about looking under the carpet on this one. Besides there is still much that can be done regarding current practice. Too many investors are paying far too much for platform services for example. The industry is still doing an excellent job of disclosing cost without clients really understanding. The FCA should work on this and leave the past alone.

  6. Crocodile tears. The drop in share price only reflected what is probably the real value of these businesses. The reason they were higher is that many investors didn’t realise (or chose to ignore) the less than TCF principles that these firms adopted. It is no coincidence that Resolution shares were amongst the worst hit; after all it is the Vulture funds that are the worst examples of bad practice – that’s what they were set up for in the firsts place.

    I suggest that a quick read of Richard Dyson’s piece on the back page of the Daily Telegraph’s ‘Your Money’ section this Saturday may shed some light on the issue

  7. For those of you who are about to take aim and shott at me for my following thoughts, plese ensure you use blank ammunition – I am a nice guy in reality. I think that the whoe review is ridiculous. You cannot start to review something that happened up to 40 years ago and think you are going to get a prpoer result. The FCA cant even proprly determine what consitutes market sensitive nowadays, how on earth do they think any kind of thematic review from decades ago will be successful? They struggle using todays standards on todays advice and by their own admission theya re not going to use standards in force today to retrospectively regulate on this closed book. What chance do they have of getting in right trying to use the regulations in place at the time of the sales? What about the years before the FS Act came into being? Get real. We are where we are and as Bones says – leave the past alone. What is in place is on place and that is the way it should stay. I disagree with Bones that NO insurer would survive – there would be one or two but it would mean hundreds of thousands out of jobs, share prices plummit again – hurting not only big investors but the pension funds of millions and millions of people all over the country. Do they really think that a review of what is in reality only a handful of really ones that decimates to this level is going to give value to anyone? I dont think that even the FCA are that stupid.

  8. Remember Martins “shoot first” statement ?

    Best to tell the mumpties who work for you Martin; pull the gun out of your holster before you shoot your bloody foot off !!!

  9. goodness gracious 7th April 2014 at 1:49 pm

    When Stakeholder pensions came in, a lot of insurers altered their policies and reduced costs for plans that had been written in the preceding years to stop those who invested in PPPs transferring to a lower cost pension, and to treat customers fairly. This was done via a allocation change to give more value.
    But some did not change, holding on to high charging initial units with their excessive fees, then selling a new improved version. The issuer than was sold, got taken over or left the investments in zombie funds, and the consolidators got their ugly mitts on them and added pillage to the original violation.
    If the insurers can alter terms of existing plans during their lifetime, then they can alter some of the iniquitous clauses in these old plans if they want to, but legacy business is big business. Since the start of Stakeholder and the alarming fall in pension business, often it’s the only thing left for the insurers to make profits on.
    I shed no tears for those insurers who make their money by treating customers unfairly.

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