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FCA under fire over handling of closed book announcement

The FCA has come under fire over the way it handled its announcement of a review into closed book policies last week.

The Daily Telegraph first reported on 28 March that the regulator is concerned legacy customers are locked into poor investments by steep exit fees, and insurers may be “exploiting” them by levying large fees to subsidise other parts of the business.

The report prompted several insurers’ share price to plummet, including Resolution, Legal & General, Aviva, Phoenix and Resolution.

L&G called on the FCA to bring forward the publication of the business plan “in view of the disorderly market.”

The regulator was forced to issue a clarification statement at 2.30pm explaining the scope of the review in more detail. At 6.30pm, the FCA issued a further statement that it would carry out an investigation into its handling of the issue.

The FCA said: “The FCA board acknowledges the concerns of the market regarding today’s press coverage of the FCA’s proposed supervisory work on the fair treatment of long standing customers in life insurance. The FCA put out a statement of clarification this afternoon.

“The board will conduct an investigation into the FCA’s handling of the issue involving an external law firm, and will share the outcome of this work in due course.”

Over the weekend, reports say insurers are calling for FCA chief executive Martin Wheatley to resign over the issue. The Sunday Times suggests the FCA only put out its first statement of clarification after a phone call between Wheatley and Association of British Insurers chief executive Otto Thoresen. The newspaper said the ABI will write to Chancellor George Osborne to complain about the FCA.

Treasury select committee chair Andrew Tyrie told The Daily Telegraph: “On the face of it, this is an extraordinary blunder.

“It is crucial we have a full and transparent explanation about how such an apparently serious mistake came to be made by our financial services watchdog – the body appointed by Parliament to enforce high standards of conduct.”

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  1. “The board will conduct an investigation into the FCA’s handling of the issue involving an external law firm, and will share the outcome of this work in due course.”

    How much will this cost and how will they manage the potential conflict of interest?

    The conflict is twofold. First, they are effectively investigating their own. Secondly, the law firm they use may well be one that they have used in the past and may well use in the future for what are lucrative contracts.

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