3 The FCA's approach to communications
Using communications as a 'tool
of regulation'
51. Part of the FCA's regulatory approach is to use
communications as a 'tool of regulation'. Clive Adamson told the
Committee:
With Mr Wheatley's arrival I am sure he felt
strongly that communication, to the industry and consumers and
the public, should be what he would call a tool of regulation.
I think he felt very strongly about that relative to the FSA.
We did incorporate that philosophy into how we did our business.
Communication was not distinct from how we conducted ourselves.
It was part of how we conducted ourselves.[61]
52. Asked what using communications as a tool of
regulation actually meant, Mr Wheatley told us:
I think it means being clear about what we expect;
about what we think "good" is and what we think "unacceptable"
is.[62]
53. The intended audience for FCA communications
was, Mr Wheatley said, very broad, and included regulated firms,
the employees of those firms, the people who consult with and
advise those firms, consumers and broader stakeholders.[63]
The FCA used "multiple channels" to communicate with
these audiences, including emails to firms, notices on the FCA
website, meetings with firms, enforcement-related communications
such as 'Final Notices', and—importantly—the media.
[64]
54. Mr Wheatley said that one of the FCA's objectives
in using the media to communicate its work was "to empower
consumers to act as their own defence":
The best form of protection is somebody who can
ask the sensible questions themselves, so when we are talking
to consumers what we are trying to say to consumers is, "These
are the sorts of things you should be asking to protect yourself".[65]
He told Simon Davis:
We deliver regulation over products that caters
for every single person in this country. So if 50 million people
in this country want to know what's going on, they won't get it
from reading our website, they will get it from the stories that
exist in the media.[66]
55. Mr Wheatley also said that the FCA used the media
to communicate information to firms, including:
Information about what our priorities are for
the year ahead, information about areas where we have looked at
and found both good and bad practice.[67]
56. Responding to the view put forward by some witnesses
that the FCA could simply use email and other direct communications
to convey this information to firms, Mr Wheatley said:
With regulated firms we communicate directly.
We write directly to the CEOs. We communicate directly [with the]
risk [and] the compliance people. We try to make sure that they
pass that information on.[68]
He added that "very specific things we send
to specific firms".[69]
But he said that "not everybody reads" the FCA's direct
emails, and the fact that FCA communications—including its
'Regulation Round-up', a "monthly email to all regulated
firms, updating [them] on the latest news which affects the sector
[they] practice in"—were written up by the national
and trade press was "another way of communicating".[70]
He also said that the FCA used the media to communicate not only
with financial firms, but with the 2.4 million people who work
for them, because many of these "do not necessarily get direct
communication from us at all":[71]
With the best will in the world our direct communications
to the compliance officers in firms does not reach as broad an
audience as we feel we need to reach, which is not just those
people but all the employees in firms and consumers of financial
services.[72]
57. In his evidence to Simon Davis, Mr Wheatley suggested
that the use of the media to communicate with firms was in part
to prompt a behavioural response to the FCA's views:
We now regulate 72,000 firms. They are the entities
that we are directly responsible for. We can't visit 72,000 firms
in a year, so part of our methodology is if those firms see what
it is we care about, they will respond to that.[73]
Mr Wheatley also identified the payday loan industry
as an example of where this approach had worked in practice:
We have made it quite clear, quite publicly,
what our concerns are in [the payday loan] industry. I think that
has driven a degree of change in the industry that has run ahead
of our ability to get out there and supervise on the ground.[74]
58. Otto Thoresen, Chief Executive of the Association
of British Insurers, told the Committee that he "disagreed"
with Mr Wheatley's justification of using the media as a way of
communicating with firms:
There is something in the point that mass communication
has to be part of setting the tone and expectation of regulated
organisations, but in the 21st century, with the capabilities
that technology brings us, targeted communication with […]
individuals and groups is possible to quite a high level of sophistication.
The problem with a broadcast medium is exactly that—it is
a broadcast medium, and the ability to control the nuancing of
the messaging is quite limited.[75]
Andrew Turberville Smith, Chairman of the FCA Smaller
Business Practitioner Panel, told the Committee:
I don't think that very often the FCA is seeking
to communicate to 72,000 firms in one go. A lot of the announcements
that it is making are sector-specific. In that regard, if it is
making an announcement to insurance brokers or financial advisors
or any other sectors, such as asset managers and wealth managers,
they are much smaller numbers than 72,000. We as a panel spend
a lot of time talking to them about other methods of communication—simple
things around e-mail, more direct communication, trade press,
through trade bodies. That proves to be an effective communication
channel for getting the message across to smaller firms.
It is not a problem if something is not in the
national press, because things that are relevant to your specific
sector are hopefully picked up, as I said, through a number of
different channels that are perhaps more pertinent to you.
[76]
59. Mr Wheatley told us that Mr Thoresen and Mr Turberville
Smith were looking at the issue "relatively narrowly",
focusing on "communication with regulated firms".[77]
However, Mr Thoresen's comments also appear to relate to the sort
of information that Mr Wheatley said the FCA would use the media
to communicate, and which was also directed at employees of regulated
firms:
The point is that if you are communicating about
the regulatory objectives of an organisation, the regulatory priorities
that it is setting and the impact that will have on individual
firms and their expectations, you have to be as clear and specific
as you can and be confident that the message has been received
as it was meant to be transmitted.[78]
This also appears relevant to Mr Wheatley's statement
to Simon Davis that the FCA wanted, as part of its "methodology",
firms to respond to the views it expressed in the media.
[79]
60. Mr Thoresen's criticism extended specifically
to the FCA's approach to the particular press operation which
led to the creation of a false market on 28 March 2014—the
pre-briefing of an element of the FCA's Business Plan for 2014/15:
When you move to mass communication techniques,
you are taken by definition right out to the edge of what can
be achieved. Yes, send the broad signals and the big themes by
all means, but do not get into trying to launch a specific part
of your business plan.[80]
61. Responding to the suggestion that the media was
a crude tool with which to communicate regulatory information,
and created the risk of the FCA's message being misunderstood,
Mr Wheatley said:
I think you are right, of course there are risks.
[…] They are risks that have to be managed, and so we work
very, very hard to try to manage those risks.[81]
But he also told us that firms often welcomed the
FCA's use of the media to communicate with them:
[I]n the last survey that the Practitioner Panel
did, 48% of [firms] said they get most of their information from
the media channels and they do welcome that.[82]
62. Graham Beale, Chairman of the FCA Practitioner
Panel, accepted that "broad policy, strategy and direction
of regulation can be communicated at a macro level". But
he said that it was important to consider the manner in which
these messages were communicated:
It is right that consumers understand what the
regulator is doing, but the way in which you convey these messages
is hugely important. Mr Davis concludes that an approach that
is based on fact and evidence and that seeks to remove the likelihood
of a sensational headline is a better way of communicating than
trying to create a set of circumstances in which you are likely
to generate a sensational headline. That will lead to an undermining
of confidence in financial services from a consumer perspective.
One of the big issues that we are dealing with now, post the crisis
and all the other scandals, is rebuilding confidence. If we are
not careful, this could eventually become part of the problem
rather than part of the solution.[83]
63. Mr Thoresen also commented on the tendency of
the FCA to "extend into the territory of rhetoric away from
the facts"—something which had made the ABI "consistently
uncomfortable".[84]
James Palmer, Chairman of the Listing Authority Advisory Panel,
said that he and a number of other members of his Panel had expressed
"strong concerns about the communications policy" to
Zitah McMillan—then Director of Communications at the FCA—on
this same point.[85]
64. Clive Adamson said that, in his view, the tone
of FCA communications had occasionally gone "too far",
particularly "in the early days" when the FCA was "very
overt" at putting its messages in the public domain.[86]
Mr Wheatley conceded that "possibly in the very early days
of the FCA the tone might have been too aggressive" because
"as a new entity, we were trying to establish an identity
and establish with the industry what we stood for".[87]
Asked for a specific example of when the FCA had struck the wrong
tone, Mr Adamson cited an FCA press release from March 2014, announcing
reforms to the general insurance add-ons market, which contained
a quotation from Christopher Woolard—then Director of Policy,
Risk and Research at the FCA—that "Firms must start
putting consumers first and stop seeing them as pound signs".[88]
Martin Wheatley agreed that the tone of this communication was
overly aggressive and challenging to the industry. [89]
But he added:
Clearly it was trying to communicate […]
to a different audience and the different audience would be people
who do not necessarily read our website or the Financial Times
but who read the popular press, to try to make sure that people
were empowered with knowledge that they should think about when
they are being sold products. That was the intention behind it,
but I know that the industry saw that as aggressive.[90]
65. Mr Wheatley and John Griffith-Jones both told
the Committee that, while the Practitioner Panel had taken exception
to the tone of some FCA communications, the FCA Consumer Panel—the
statutory panel that represents the interests of consumers in
the development of FCA policy—took the opposite view.[91]
Mr Griffith-Jones said that the Consumer Panel was "inclined
to believe that [the FCA] should speak out" and wanted the
FCA to "champion consumers".[92]
Mr Adamson confirmed this, telling the Committee:
[W]e have to balance what the Practitioner Panel
says versus the other panels. We have a Consumer Panel on the
other side who probably welcomed some of the tone of our conversation.[93]
66. Mr Wheatley said that he knew that "from
the industry's point of view some of the headlines […] were
too aggressive", but that the FCA "worked very hard
to try to make sure that we were balanced in what we were sending
out".[94] But he
also told us:
The Practitioner Panel will not always agree
with the balance being right, because frankly, when we are calling
out bad behaviour, by and large people would rather not see that
called out. When we have to do that—and clearly we have
to do it at times—we work quite hard to try to make sure
that we get that absolutely right.[95]
67. Mr Beale also made a broader criticism in respect
of the FCA's media approach—that there appeared to be an
attitude that "headlines are good".[96]
The FCA Practitioner Panel referred to this criticism, with particular
emphasis on the mishandled briefing on the Life Insurance Review,
in its report to the FCA Board in April 2014:
There is inherent danger in the FCA's desire
to court headlines to raise the profile of its work. [The recent
events relating to the release and publicity of the FCA Business
Plan were] an unavoidable consequence of the direction of travel
of the FCA's media policy, despite the Panel's attempts to encourage
a constructive, balanced tone and some limited success in this
space. Views were expressed by a number of Panel members that
this was an 'accident waiting to happen' and an overly proactive
use of the media is not conducive with the FCA achieving its statutory
objectives.[97]
68. Mr Wheatley said that there was no culture or
objective in the FCA requiring the generation of "sensational
headlines". However, he drew a distinction between generating
sensational headlines and "[g]enerating coverage", adding:
As part of communicating, we want people to have
access to forms of communication that they would read. While we
would like to think that everybody reads our website diligently
or our regulatory round-up diligently, they do not always, so
we use a multitude of different media of which the press is one
but it is only one. We try to make sure that our stories get covered
accurately and dispassionately, and that is our intention whenever
we have any communication strategy. [98]
69. Mr Beale also drew the Committee's attention
to an FCA paper entitled "FCA Communications Strategy 2014/15
Year 2 'Truth and Proof'" presented to the Panel in June
2014—more than two months after the pre-briefing to the
Telegraph. This paper examined a pre-briefing to The Times in
September 2013 on the announcement of a market review of the cash
savings market.[99] The
Panel took exception to the reporting of this announcement, and
the resulting headline 'Savers lose billions in hidden bank rate
rip-off". But Mr Beale said that the June 2014 Communications
Strategy "described [the story] in a case study as an example
of good media coverage". The Communications Strategy paper
as a whole was "poorly received" by the Panel, and "illustrated
an attitude that 'headlines are good' and tend[ed] to focus on
quantity rather than quality of media reporting".[100]
Summarising the Panel's broad view, Mr Beale said:
[T]he Panel would recommend a commitment to
a revised strategy where media activity is more constrained and
measured. This will require a fundamental shift and reappraisal
of their current stance where the media is regarded as a 'tool
of regulation'.[101]
70. Mr Beale said that there was "frustration
within the Panel that comments that we have repeatedly made sometimes
go into a black hole". However, Mr Griffith-Jones told us:
As you will appreciate, they are advising us,
not telling us, what to do, so sometimes we agree and sometimes
we don't. We seek to provide them feedback. The more they disagree
with us the more they are inclined to believe that their comment
was not listened to. I think that is not fair.[102]
And while the Practitioner Panel's report to the
Board in April 2014 sought to blame the FCA's communications strategy
for the events of 28 March 2014, Mr Griffith-Jones noted:
[T]he panel's primary concern was nothing to
do with price sensitivity. It was that they did not like a constant
repetition of stories that were, in their view, damaging the reputation
of the industry and their very clearly stated view to me at least
when I was with them was that we, the FCA, were not helping matters
by pointing out failings, as opposed to pointing out successes.[103]
71. Nevertheless, Mr Adamson said that he took lessons
from the events of 28 March 2014:
This is one of my reflections going forward […].
I think it is incredibly important that the FCA is seen as part
of the solution to the industry's difficulties, not part of the
problem. What I mean by that is that I think it is very important
that the FCA does not contribute to increased loss of confidence
by consumers and investors in the industry by being too aggressive.
I think it has to get the balance right. While it clearly has
responsibility to identify wrongdoing and should do so, it has
to do it in a way that does not lead to lack of trust or slowness
in rebuilding trust in the industry.[104]
72. Communicating
with consumers and alerting them to conduct risks is an important
aspect of the FCA's work. It can help to raise consumer awareness,
allowing customers to make more informed choices and advancing
the FCA's consumer protection objective. The media can be an effective
vehicle for this type of communication, since the messages can
generally afford to be simplified as the broad intended audience
does not need to be party to great levels of detail. In a similar
way, the media can be an effective means of making employees of
regulated firms broadly aware of the FCA's work and aims.
73. However,
the media is an inappropriate means of communicating specific
regulatory information. Martin Wheatley suggested that part of
the FCA's aim in using the media was to prompt regulated firms,
or their individual employees, to take note of the issues the
FCA cared about and to take pro-active steps to address the FCA's
concerns. But if that is the effect the FCA seeks, it should communicate
its concerns to firms with clarity; this cannot be guaranteed
if the media is used as a substitute for direct communication.
74. It is reasonable
for the FCA to seek to raise awareness in regulated firms of the
conduct issues which it is tackling through rules and regulatory
action. But the intention in using the media for this purpose
should be limited to prompting firms and their employees to examine
the official publications the FCA has issued elsewhere—for
example, specific rules and guidance in the FCA Handbook, or Final
Notices of enforcement action. Martin Wheatley has said that the
FCA uses the media as a complement to its official communications.
The FCA should not use the media as a substitute for its official
communications. Email makes direct, targeted communication—even
to 72,000 firms—cheap and straightforward. Firms that ignore
the FCA's direct communications should know that they do so at
the risk of enforcement action if they fail to comply with its
requirements.
75. There is
merit in the FCA publicising wrongdoing where it has taken place.
The FCA should treat this form of public explanation as an important
part of its work. However, in all of its public communications,
it should be aware of the risk of creating a misplaced wider antipathy
towards the industry among consumers, when most firms may not
be culpable of any misconduct. This would be harmful to regulated
firms and to the FCA's objective to protect and enhance the integrity
of the UK financial system, and may not be in consumers' interests.
The FCA should take particular note of Simon Davis's recommendation
that it adopt a factual, evidence-based approach to communications,
avoiding sensational headlines where possible.
76. The FCA
says that it does not set out to generate sensational headlines.
Nonetheless, the Practitioner Panel believes there are signs,
even after the events of 28 March 2014, that the FCA still judges
the success of its communications strategy by the quantity of
media coverage, more than the quality of its content. The FCA
needs to satisfy itself that this is not the case, in its communications
area or any other part of the organisation. If it is not the case,
the FCA needs to consider why this damaging perception still exists
in the Practitioner Panel, and take steps to address it. The expertise
of both the Consumer and the Practitioner Panels needs to be used
to better effect.
Pre-briefing the press on forthcoming
FCA announcements
77. As part of its communications approach, the FCA
often 'pre-briefs' the media on forthcoming announcements. 'Pre-briefings'
can take a number of different forms. The FCA said that it conducts
two broad sorts: embargoed pre-briefings, and trailed pre-briefings.
78. In embargoed pre-briefings, journalists are briefed
in advance of an FCA announcement, but agree not to publish their
stories until the announcement is made. The FCA uses this type
of briefing to help to ensure that announcements are accurately
reported.[105] Mr Wheatley
told us:
[T]he media is very competitive and people want
to file their stories as quickly as possible. If everybody received
that story at exactly the same time, you would find some quite
wild stories that are filed within two minutes, five minutes,
10 minutes, 15 minutes, so the objective of having an embargoed
pre-briefing is to try to make sure that everybody writes about
it in an informed way, and we have had a chance to iron out any
idiosyncrasies or things that people have misunderstood.[106]
Embargoed pre-briefings could involve an FCA
release being sent to a press distribution list under embargo.
They could also be tightly controlled—for example, the FCA
might hold a briefing in its headquarters, in which journalists
are kept in a secure room and only allowed to publish their stories
once the FCA has made its official announcement.[107]
79. In trailed pre-briefings, journalists are also
briefed on forthcoming FCA announcements, but are allowed to publish
their stories before the FCA has made any formal public statement
of its own. Simon Davis described the rationale behind this approach:
In some cases, the FCA may wish to generate media
coverage in advance of an announcement with the intention that,
by the time the announcement is made, there is already sufficient
interest in the media such that the issue or announcement is covered
more broadly. This is the practice also known as "trailing"
a story and is undertaken to increase coverage.
In some cases an exclusive will be given to a
single journalist in order to encourage the story to be written
in circumstances where it otherwise might not attract interest,
if given to the media at large. We were told, for example, that
the giving of an exclusive might encourage the relevant journalist
to cover the particular piece of work in more detail than he or
she would were the briefing to have been given more generally.[108]
80. Simon Davis told us that "the FCA [takes]
the view that it is unacceptable to pre-brief about something
that is price-sensitive or risks being price-sensitive".[109]
Zitah McMillan confirmed that the FCA "would not, under any
circumstances, do any form of pre-briefing in relation to market-sensitive
information", and Martin Wheatley said that this was established
practice.[110] However,
it was a trailed pre-briefing to the Daily Telegraph on the FCA's
forthcoming 'Thematic Review' of the life insurance market that
led to the large falls in the share prices of several major life
insurers on 28 March 2014.
81. Mr Palmer told us that he understood the benefits
of pre-briefing, in particular to a single journalist:
[I]f you give someone an exclusive, you may get
an opportunity to get more coverage—more insightful, thoughtful
coverage—than if you just put something out through a mass
press release. So I do understand the idea of pre-briefing.
My reaction is not to damn all pre-briefing,
because I think a lot of other pre-briefing has certainly has
not done any harm, and it may have helped the FCA's communication
of its policy goals around consumer regulation.[111]
However, he added that the particular pre-briefing
to the Telegraph had demonstrated an "absence of process,
and review, and thought".[112]
82. The FCA had provided a written briefing and a
telephone interview (with quotations attributed to Clive Adamson)
to the Telegraph on the FCA's forthcoming 'Thematic Review' of
the Life Insurance Market. The aim of the review was to examine
the treatment of long-standing customers in life insurance contracts.[113]
As part of its work, the FCA would assess "the nature and
extent of exit and discontinuance charges that potentially inhibit
customers from switching to better performing products",
but its aim was only to assess these "exit fees", and
not to consider whether they should be banned.[114]
However, the resulting Telegraph article—published online
under the headline "Savers locked into 'rip-off' pensions
and investments may be free to exit, regulators will say"—gave
the impression that the scope of the FCA's Thematic Review was
far more significant than this.[115]
Since the article was published in advance of any official statement
by the FCA, investors had no way of authenticating the article's
claims. The share prices of several major life insurers dropped
heavily when the markets opened on 28 March, and only recovered
following the publication of a separate clarifying statement by
the FCA later that day.
83. Otto Thoresen told the Committee that the lack
of an official statement by the FCA made the Telegraph story particularly
difficult for the ABI to deal with:
From my point of view, the biggest challenge
on the Friday morning when events were unfolding around us was
that, unlike any other announcement of this type that has come
from the conduct regulator over the last year, we did not have
a press release or a report against which we could compare what
was being said. Until we did—we got that later in the day,
at least in terms of what it was not—it was very difficult
to give people confidence.[116]
84. Clive Adamson told us that the FCA had assumed
that Thematic Reviews were by definition not price-sensitive.[117]
Mr Wheatley therefore described the FCA's surprise that the pre-briefing
on a Thematic Review had had such a significant effect:
What we had not expected—and we got this
wrong and it is a big learning for us—is the fact that we
would look at an area, not that we had findings, not that we were
stating we had concerns about it, but the fact that we would look
at an area would itself become such a big story.[118]
85. Mr Davis criticised the FCA's failure to consider
at least the potential for the pre-briefing to be price sensitive:
The reasonable bystander with a degree of knowledge
of the insurance industry would have taken the view that there
is a risk here that this is price-sensitive and […] we should
stop in our tracks and think whether this is the right thing to
be doing at all.[119]
86. Mr Wheatley said that the FCA would not in future
pre-brief on a piece of work that it thought was sensitive.[120]
However, this would not necessarily preclude an incident similar
to that on 28 March, for two reasons. First, the FCA had assumed
that the Thematic Review pre-briefed to the Telegraph, whose article
prompted the share price movements, was not price sensitive. Second,
the market response to the Telegraph article appears to have been
caused not by the announcement of the review per se, but
by the exaggerated reporting of its scope.
87. The Davis Report considers how the exaggeration
of the scope of the Thematic Review was allowed to arise. The
FCA's written briefing to the Telegraph contained the following
wording:
In our 2014 Business Plan, published 31 March,
we will be announcing a review of life insurers' long-standing
investment products to start this summer;
We're doing this because millions of people have
old (long-standing/established) investments that they have forgotten
about or check very rarely (about 30m policies worth an estimated
£150bn in total, and an estimated £18bn in new premium
every year);
Some of these products also have high exit charges
(Which? recently cited a 12% exit charge on one fund) which can
act as a barrier to taking your money elsewhere—we will
collect information on this to understand if it is an area in
which we need to intervene.[121]
88. The FCA produced no transcript of the telephone
interview with the Telegraph. However, Mr Davis says in his report
that the FCA 'Media Associate' who sat in on the telephone interview
told him:
that there may have been a question about whether
banning exit fees was possible and that the response from Mr Poyntz-Wright
may have been something along the lines of "that would
be a very extreme option", this was not the focus of
the Life Insurance Review and any action would only be considered
after the results of the discovery work were known.[122]
89. The resulting Telegraph article included the
following text:
Savers locked into rip-off pensions and investments
could be given a free exit or moved to better deals, regulators
will say next week.
The City watchdog is planning an inquiry into
30?million policies sold by insurance companies from the Seventies
to the turn of the Millennium, The Telegraph can disclose.
A large number of policies also include obstructive
exit fees that can halve a policy's value if a customer attempts
to switch to a cheaper provider.
The watchdog will consider banning these "lock-in"
fees if such a measure is deemed a practical way to overcome the
poor treatment of policyholders.
Banning exit fees on old pension policies would
be one the strongest actions the FCA could take, Mr Adamson said.
Alternatives include asking firms to move customers to a better
product, providing clearer information, investing more in the
management of old funds, offering a greater variety of investment
options within the policy or cutting fees.[123]
90. Mr Davis told us that the Telegraph article contained
"speculation that went beyond the pure facts".[124]
However, Mr Davis was clear that:
[E]nough had been said by the FCA in its written
briefing and in the oral briefing to give The Telegraph
the leg-up to speculate. It is speculation, as I think is apparent
from the article—the use of the words "may" and
"would"—a close reader would know that this is
speculation, but people in a particular circumstance concerned
about their shares are not going to be necessarily reading an
article as closely as that.[125]
In a submission to Mr Davis, the Telegraph said that
"the duty of a reporter is to extract from complex sets of
data, information of significance and relevance to his/her newspaper's
readers" and that the journalist in question had done "no
more than his job".[126]
Mr Davis did not criticise the Telegraph, saying that the journalist
in question was "supplied with a substantial amount of material
to use as he thought best in the interests of his readers",
and "had been left to speculate as he thought fit".[127]
Mr Davis added that there was "always going to be a possibility"
that a written briefing could be used by a journalist to speculate
beyond the limits of the briefing.[128]
91. Mr Palmer expressed a similar view:
I actually think there is a strong argument that,
if you look at the specific words communicated by the FCA in Mr
Davis's report to the journalist, the information shared was not
price-sensitive information and was not inside information. It
was the way that they lost control, as the report draws out, and
the way that it was then communicated to the market which created
a false impression of what was actually happening.[129]
This did not, however, excuse the FCA's mishandling
of the pre-briefing—Mr Palmer added that "[w]hen you
review for price sensitivity, I would expect a listed company,
for example, to think about the risk of miscommunication at the
same time".[130]
92. Clive Adamson told the Committee that three things
had been recognised following the events of 28 March 2014:
First, that, even if we do not believe it is
price sensitive, it could be construed as such; secondly, that
the reporting of a piece of information could itself make it price
sensitive, so we have to be extremely careful about that; and,
thirdly, recognising we wish to be transparent about the work
we are planning to do, we will do it in a way that does not cause
the damage that has been caused by this incident.[131]
93. Mr Davis told us that the FCA, as a regulator,
has to be particularly careful when it comes to the effect of
its communications on the market:
[P]articularly where you are the regulator and
particularly where the regulator's words can have quite significant
impact in the market that I would say it has to be particularly
careful about pre-briefing.[132]
In an email exchange within the FCA in early
March 2014, Tracey McDermott, then Director of Enforcement, had
expressed a similar sentiment when considering the pre-briefing
of a market study:
[I]f we do genuinely think this or any other
study is market sensitive then we need to look not just at announcement
process but a whole host of other things […]. Given our role
as market regulator we perhaps have to be more careful about this
than other regulators might have to be.[133]
94. In his report, Simon Davis said that he was "not
convinced that it is necessary to pre-brief the media in relation
to forthcoming FCA announcements". He recommended that the
FCA satisfy itself that such pre-briefings were appropriate, and,
to the extent that the FCA wished to pre-brief announcements to
the media, should put controls in place to ensure that the FCA
remained in control of its message.[134]
95. In a letter to the Committee, Mr Wheatley said
that the FCA had not conducted any pre-briefings of the sort given
to the Telegraph since March 2014, in which the journalist was
free to publish his or her story ahead of an official FCA announcement.
Mr Wheatley added that the FCA intended "to continue in this
manner, with briefings conducted only under strict embargo and
with a statement released to our press distribution lists when
the embargo lifts".[135]
This appears to be somewhat more restrictive than Mr Davis recommended.
However, Mr Wheatley also said that the FCA may continue to offer
"exclusives" to individual journalists—so long
as this received Mr Wheatley's prior approval—which journalists
would be allowed to publish immediately or at a time of their
choosing. Mr Wheatley said that other organisations used this
technique "to ensure that an issue has a better chance of
securing media coverage".[136]
96. Pre-briefing
comes in many different forms. Properly controlled, it can be
a useful tool, enabling announcements to be understood and accurately
reported by the press. But 'trailed pre-briefing'—in which
journalists are briefed, and allowed to publish stories, on the
FCA's work before the FCA has published an official statement
of its own—is unnecessary and ill-advised, whether the briefing
given is written or oral. The use of the media as a substitute
rather than a supplement for regulatory statements creates much
greater scope for misunderstanding or partial communication of
the intended message. Only by publishing an official FCA statement
at the same time as any pre-briefed article can the FCA reasonably
expect to avoid the risk of miscommunication.
97. Simon Davis
said that he was not convinced of the need for the FCA to conduct
trailed pre-briefings, and that the FCA should better control
the process if it wished to continue. The FCA has told the Committee
that it intends to refrain from this particular type of pre-briefing
altogether; the Committee welcomes this decision. However, the
FCA has not ruled out giving 'exclusives' to individual journalists,
which may be published at a time of the journalist's choosing.
The FCA has not made clear what the subject of such exclusives
might be. It should confirm that it will not in future use exclusives
to brief the media on forthcoming FCA announcements without publishing
an official statement of its own.
98. Martin Wheatley
told the Committee that the FCA would not pre-brief information
that it thought was price sensitive. The danger, however, is that
even announcements that do not appear to be price sensitive can
become so if they are handled incorrectly—a lesson which
Clive Adamson told the Committee he had learned from the events
of 28 March.
99. Witnesses
told us that the FCA's pre-briefing to the Telegraph on the Life
Insurance Review was not in itself price-sensitive. It contained
some broad information about the review, including that the FCA
would collect information on exit fees—penalty charges for
long-standing policy-holders seeking to switch insurance providers—to
"understand if it is an area in which we need to intervene".
The briefing also said that there were 30 million long-standing
policies of the sort the FCA would consider. However, in handing
over control of the presentation of this information to the Telegraph,
the FCA gave the newspaper—in the words of Mr Davis—"the
leg-up to speculate […] beyond the pure facts" on what
possible regulatory responses at the conclusion of the review
might be. In the event, the Telegraph article suggested that the
FCA might ban exit fees, and that the review would be an "inquiry
into 30 million policies". This proved to be highly market
sensitive. The FCA did not brief the Telegraph explicitly that
it might ban exit fees or that it would examine 30 million individual
policies. Nonetheless, it was reasonable of the Telegraph journalist—on
the basis of the briefing given—to have speculated in this
way. The result was a misrepresentation of the scope of the review.
This misrepresentation, which prompted the share price movements
on 28 March 2014, was inadvertently facilitated by the FCA's briefing
approach. It was not caused by poor journalism; nor did Mr Davis
criticise the Telegraph in his report.
100. If the
FCA is to avoid similar events in future, it must not only take
more care to identify price-sensitive announcements, but consider
how its briefing strategy could lead to non-price-sensitive releases
becoming price-sensitive. It is not clear to the Committee, in
the light of Mr Wheatley's evidence, that the FCA has understood
this important distinction. The FCA's Executive Committee should
conduct, and publish, a review of its communication methods to
reassure Parliament, the regulated community and the public that
it has grasped this important point, which Clive Adamson and others
have made.
A failure of strategy or controls?
101. Simon Davis concluded:
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, to be
published on Monday 31 March 2014.
The strategy and the manner in which it was pursued
was, however, high risk, poorly supervised and inadequately controlled.
When it went wrong, the FCA's reaction was seriously inadequate
and fell short of the standards expected of those it regulates.[137]
102. As described, the FCA Practitioner Panel said
in its April 2014 report to the FCA Board that events of 28 March
were an "an unavoidable consequence of the direction of travel
of the FCA's media policy" more broadly:
Views were expressed by a number of Panel members
that this was an 'accident waiting to happen' and an overly proactive
use of the media is not conducive with the FCA achieving its statutory
objectives.[138]
103. Graham Beale expanded on this criticism, telling
the Committee that "this extensive pre-briefing and a desire
to generate at times sensational headlines are very unhelpful
and high risk […] and without appropriate control around
it, it can go horribly wrong, which is what we saw in March".[139]
104. Mr Wheatley, however, rejected the idea that
the FCA's communications strategy was at fault, and said that
the events of 28 March were not a result of the policy or strategy
itself:
I think you can be certain […] that the
strategy we had was the right one. I do not think we had the wrong
strategy. I think we made some mistakes in this particular instance
and we have learnt from those mistakes. What we are not going
to do and the message that I have put through to the organisation,
is we cannot go into our shell in a way of being scared to communicate
at all, because of the criticism that we rightly attracted on
this occasion.[140]
105. Asked whether the approach of engaging with
the media in order to communicate very difficult matters was an
approach that was likely to get out of hand, Mr Wheatley replied:
No, I do not believe I can answer that. I do
not accept that. I think it has to be managed carefully, and absolutely
accept that there are risks to it. I think those risks are mitigated
by the fact that we are trying to do a very difficult job in a
very wide range of complex areas that need to be communicated.[141]
106. Mr Beale told the Committee that the FCA Board
had also defended the media strategy in the face of the Panel's
criticisms:
The board has responded and argued that the use
of the media in its communications strategy more generally was
a regulatory tool and a way of communicating with the very large
number of firms that it regulates. That is not a point that the
panel agrees on. We wrote to the board and said it was a point
that we would agree to disagree on, because we think it is high-risk.[142]
107. Mr Wheatley agreed that the strategy carried
risks, but said that "[t]hey are risks that have to be managed,
and so we work very, very hard to try to manage those risks".[143]
However, Mr Davis concluded that the FCA did not give sufficient
consideration to the question of whether the pre-briefing on the
life insurance review could move markets, and that a reasonable
bystander should have concluded that there was at least a risk
of its being price sensitive.[144]
In addition Mr Palmer told us that he would expect a listed company
to consider not just the information being communicated but "the
risk of miscommunication"; the FCA did neither.[145]
108. Martin
Wheatley did not accept that the FCA's communications strategy
was to blame for the events of 27 and 28 March. However, the FCA's
Practitioner Panel believed that what happened was an "unavoidable
consequence of the direction of travel of the FCA's media policy".
The Practitioner Panel was right to draw attention to the risks
involved in the FCA's communications strategy. This strategy made
the events of 27 and 28 March 2014 not just possible, but likely—one
of its principal aims was to ensure that FCA communications reached
a large audience through media coverage, and this media coverage
was secured in part by the FCA handing more control to journalists
over FCA announcements than was appropriate for a regulator. This
inevitably increased the risk of the FCA's intended message being
lost. It is incorrect to claim, as Martin Wheatley has done, that
the communications strategy was not in some way to blame for the
events of 28 March 2014. The Committee is concerned that Mr Wheatley
still does not acknowledge this.
61 Q 132 Back
62
Q 444 Back
63
Q 445 Back
64
Qq 446-447 Back
65
Q 451 Back
66
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 8.4 Back
67
Q 459 Back
68
Q 465 Back
69
Q 462 Back
70
Q 459 Back
71
Qq 465, 473 Back
72
Q 520 Back
73
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 8.4 Back
74
Q 541 Back
75
Q 302 Back
76
Qq 380, 382 Back
77
Q 465 Back
78
Q 303 Back
79
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 8.4 Back
80
Q 303 Back
81
Qq 454-455 Back
82
Q 458 Back
83
Q 387 [Graham Beale] Back
84
Q 295 Back
85
Q 297 Back
86
Q 128 Back
87
Q 489 Back
88
Clive Adamson (PRE0004) pages 1-2 Back
89
Q 490 Back
90
Q 490 Back
91
Qq 543, 549 Back
92
Q 543 Back
93
Q 130 Back
94
Q 491 Back
95
Q 489 Back
96
Letter from the Chairman of the FCA Practitioner Panel to the
Chairman of the Treasury Committee, 9 January 2015 (PRE0006) page
2 Back
97
FCA Practitioner Panel report to the FCA Board, 1 April 2014,
page 1 Back
98
Q 449 Back
99
Financial Conduct Authority (PRE0009) slide 17 Back
100
Letter from the Chairman of the FCA Practitioner Panel to the
Chairman of the Treasury Committee, 9 January 2015 (PRE0006) Back
101
Letter from the Chairman of the FCA Practitioner Panel to the
Chairman of the Treasury Committee, 9 January 2015 (PRE0006) Back
102
Q 494 Back
103
Q 519 Back
104
Q 130 Back
105
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 8.34 Back
106
Q 479 Back
107
Martin Wheatley (PRE0014) page 1; Q 486 Back
108
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraphs 8.37-8.38 Back
109
Q 21 Back
110
Q 240; Martin Wheatley (PRE0014) page 1 Back
111
Q 307 Back
112
Q 307 Back
113
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 9.4 (and
around) Back
114
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraphs 9.7,
9.11 Back
115
The Daily Telegraph, 'Savers locked into 'rip-off' pensions and investments may be free to exit, regulators will say',
27 March 2014 Back
116
Oral evidence taken on 8 April 2014, HC (2013-14) 1189, Q 446 Back
117
Q 156 Back
118
Q 515 Back
119
Q 34 Back
120
Q 476 Back
121
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 11.94 Back
122
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 12.17 Back
123
The Daily Telegraph, 'Savers locked into 'rip-off' pensions and investments may be free to exit, regulators will say',
27 March 2014 Back
124
Q 47 Back
125
Q 47 Back
126
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 4.72 Back
127
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 14.24 Back
128
Q 39 Back
129
Q 312 [James Palmer] Back
130
Q 312 [James Palmer] Back
131
Q 161 Back
132
Q 21 Back
133
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 8.54 Back
134
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 19.59 Back
135
Martin Wheatley (PRE0014) page 1 Back
136
Martin Wheatley (PRE0014) page 1 Back
137
Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraphs 4.4-4.5 Back
138
FCA Practitioner Panel (PRE0001) page 1 Back
139
Q 378 Back
140
Q 533 Back
141
Q 520 Back
142
Q 389 Back
143
Q 455 Back
144
Q 34; Simon Davis, Clifford Chance, 'Report of the Inquiry into the events of 27/28 March 2014 relating to the press briefing of information in the Financial Conduct Authority's 2014/15 Business Plan',
20 November 2014 (published 10 December 2014), paragraph 4.32 Back
145
Q 312 [James Palmer] Back
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