The issue of who regulates the regulators was thrown into sharp focus following the publication of a rather costly (£3.15 million / $4.95 million) independent report into the UK Financial Conduct Authority’s media and financial market management.
The report was prompted by the FCA’s inadequate reaction to an exclusive and unrecorded telephone pre-briefing given by one its employees to the Daily Telegraph. The oral pre-briefing contained price sensitive information by reference to an intended thematic review into the life assurance market and in particular, exit fees. The consequent story created “a false or disorderly” market which lasted for nearly the whole trading day until the FCA published a clarification statement. The FCA’s reaction to publication of the story, which was initially self-congratulatory, was found wanting in almost every respect.
The report concluded that although the FCA’s pre-briefings were well intentioned, the strategy and manner pursued was high risk, poorly supervised and inadequately controlled and that the FCA’s reaction to the consequent fallout was seriously inadequate and rather dammingly, “fell short of the standards expected of those it regulates.”
The report found that no process existed to determine whether pre-briefing information was price sensitive and that no training was given to staff on the identification, control or handling of price sensitive information and market abuse. It found that the FCA’s chief executive had relied on unrecorded assurances that stories released to the media would be “safe” and that the FCA’s executive committee did not actually discuss the form of pre-briefings.
The failures highlighted by the report are serious, for latterly the FCA has been seeking to use the media as a regulatory tool. It should also make other regulators and enforcement agencies, consider carefully how best to conduct relations with the media. One of the criticisms made by the report was that the FCA had no contingency plans in place to deal with infelicitous reporting.
Recent pronouncements by the FCA’s chief executive that “the industry (financial) remains in the foothills of cultural reform” and of the need to push changes from the top of organizations may, in the course of reading the report, contribute to an almost unavoidable sense of schadenfreude.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.