MPs say watchdog created 'false market' for insurers

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Britain's financial regulator created a false market in shares of life insurers last year, a group of MPs has said.

The Commons Treasury Select Committee said the Financial Conduct Authority (FCA) made a serious error last year by mishandling a pre-briefing of its life insurance review.

Comments made by an FCA official in a newspaper interview sent insurers' share prices plunging.

Companies affected included Aviva, Legal & General and Prudential.

Clive Adamson, the head of supervision, said in the interview that the FCA would investigate whether people locked into pension plans were being treated unfairly.

That sparked fears about a possible effect on insurers' profits and prompted some investors to sell their stakes.

In a strongly worded 89-page report, the Treasury committee said the incident had been a "major self-inflicted distraction" from the FCA's core purpose of making markets function smoothly.

Andrew Tyrie, chairman of the committee, 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."

However, the report stopped short of calling for resignations and instead set out several steps the watchdog should take over the next six months and report back.

'Poor working relationships'

The FCA said it was determined to learn the lessons and ensure this would never happen again, and would study the committee's recommendations.

The authority's executive committee, headed by chief executive Martin Wheatley, should examine communications methods and "poor working relationships" between divisions, the report said.

The board, headed by FCA chairman John Griffith-Jones, should commission an external review of its own effectiveness, according to the committee.

The FCA and the Bank of England's Prudential Regulation Authority should each produce a map setting out the responsibilities of senior officials in the same way the regulators are asking banks to, MPs said in the report.

They also called on the FCA to stop briefing certain journalists on forthcoming announcements unless it published the news at the same time any stories appeared in the media.

Further, the authority should train its staff on how to handle price-sensitive information.

"The evidence from 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," Mr Tyrie said.

The report echoes an independent inquiry by Simon Davis published in December that led to Mr Wheatley and other senior FCA officials losing their bonuses.

Mr Adamson left the FCA two days before the Davis report was published.

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