City regulator scolded by MPs over ‘false market’ blunder

27th March 2015

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MPs have accused the City watchdog of creating a false market in life insurance company shares after mis-handling a press briefing.

 

The Treasury Select Committee said the Financial Conduct Authority (FCA) made a serious error last year when one if its officials, Clive Adamson, told a newspaper that the regulator would investigate whether it was fair to lock people into pension plans.

 

This caused the share prices of life insurance companies, which offer pensions and annuities, to plummet, including Aviva, Legal & General and Prudential, as investors feared profits would be hit.

 

In an 89-page report, the committee – headed by Andrew Tyrie – said the mis-handling of the interview had been ‘a major self-inflicted distraction’ from the FCA’s purpose of making sure markets run smoothly.

 

Tyrie said: ‘By effectively breaching its own listing rules, the FCA itself created a false market in life insurance shares. Had a regulated firm behaved as the FCA did last March, the FCA is likely to have imposed a considerable fine.’

 

The FCA said it had learned its lesson from the incident and would follow the steps set out by the committee, which stopped short of calling for resignations.

 

FCA chief executive Martin Wheatley should examine communication methods, said the MPs and FCA chairman John Griffith-Jones should commission an external review of its own effectiveness.

 

The committee also called for the FCA and the Prudential Regulation Authority, which supervises banks, to produce a map setting out the responsibilities of senior officials.

 

The FCA was also told to stop briefing certain journalists on upcoming announcements unless it is publishing the news at the same time.

 

‘The evidence form this episode suggests that problems may still exist at the FCA. It is not yet clear to the committee that the FCA has fully grasped this,’ said Tyrie.

 

 

 

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