On 10 December 2014 the FCA published the Davis Review in full together with the FCA’s formal response.   It provides a detailed account and analysis of the events leading up to and immediately after the publication of The Telegraph story about the FCA’s planned life assurance review on 27 March 2014.  On the morning of 28 March 2014, the prices of shares in a number of companies which specialise in pools of potentially affected insurance policies fell substantially. Despite calls by the affected insurance companies, the FCA did not issue an explanatory statement until 2.27 pm on 28 March 2014.  The share prices recovered substantially, but not entirely.

In April, the FCA’s Non-Executive Directors appointed Simon Davis to conduct an independent inquiry into the handling of the FCA’s announcement of proposed supervisory work on the fair treatment of long-standing customers in life insurance.  Terms of reference were published and protocols were agreed at the outset. 

The Davis report concludes that the FCA’s strategy of giving an advance briefing to The Telegraph in relation to the scope of the Life Insurance Review was well-intentioned: the FCA had sought to avoid the nature and scope of the Life Insurance Review being misunderstood when it was announced for the first time in the Business Plan, which was to be published on Monday March 31 2014.  However the strategy and the manner in which it was pursued, was high risk, poorly supervised and inadequately controlled, and the FCA’s response, when the strategy went awry, was seriously inadequate and fell short of the standards the FCA expects of those it regulates.

The report makes a number of criticisms of the way the FCA handled the launch of the 2014/15 Business Plan and in particular the communications of the scope of the proposed thematic review of life assurance; it identifies some errors by individuals in failing to communicate or escalate issues, and a number of shortcomings in the FCA’s systems and ways of working, including the following:

  • there was no appreciation within the FCA that the Business Plan could contain price sensitive information
  • no consideration was given to whether the pre-briefing to be given to the Telegraph, and the way it might be reported, could have a significant effect on share prices; no process for such consideration existed
  • the practice of pre-briefing the media was not the subject of any policy or internal guidance, and was not formally authorised by the Board or the ExCo, although it was participated in by various members of ExCo
  • procedures within the Supervision and Communications Divisions to identify and control the release of price sensitive information were inadequate and no training was provided to employees in these Divisions on the identification, control or handling of price sensitive information
  • no holding announcement was considered
  • a false market was created prior to the FCA’s announcement; a disorderly market may also have existed during the same period
  • no emergency action plan existed

The FCA Board has fully accepted Mr Davis’ criticisms and apologised for the mistakes made and the shortcomings in systems and controls which the report revealed.  The FCA is making a number of changes to its structure and operating model in order to sharpen its focus, which will also address some of the issues identified in the report.

The recommendations

In Chapter 19, the report makes recommendations across seven areas about changes to the FCA’s systems, processes and ways of working, all of which the FCA has accepted and has already made progress in actioning.

The FCA has in parallel completed three separate pieces of work looking at:

  • the handling of price sensitive information
  • the external communications strategy
  • the FCA issue and crisis response framework

The outputs of all three workstreams are now being implemented alongside Mr Davis’ recommendations.

  • The procedures relating to the identification, control and release of price sensitive information have been substantially improved.  Staff have been informed of the revised policies and guidance, and central training about these revised procedures for all managers has begun; further training and awareness initiatives will be rolled out to all staff within their divisions.
  • In future the annual Business Plan will be released to all market participants at the same time.
  • The FCA has reaffirmed its existing policy and practice that we will not brief price sensitive information externally under any circumstances.  In addition, selective media briefing without an embargo on any thematic review, or indeed any other announcement, will only take place after the relevant team have agreed the communications approach and with the express approval of the Chief Executive.
  • The FCA has agreed and implemented new sign-off procedures for all external and internal communications.
  • New operational protocols to apply to communications with the FCA’s audiences, including the media, are being developed and will be benchmarked against those of other regulators.
  • The FCA is enhancing its frameworks to support incident, issue and crisis handling, recognising that speed of escalation and decision-making are critical in such situations.

Chief Executive, Martin Wheatley, Director of Supervision, Clive Adamson, Director of Communications and International, Zitah McMillan and Director of Markets, David Lawton will not be receiving a bonus for 2013/14.  Reflecting their collective responsibility, the 2013/14 bonus payments for all other members of Executive Committee have been reduced by 25%.  Other disciplinary action has been completed as appropriate.