4 Failures of oversight and co-ordination
at the FCA
The Executive Committee's failure
to oversee the communications strategy
109. The FCA's Executive Committee is the "primary
executive decision making body of the FCA and is responsible for
the operations of the organisation, including policy decisions,
regulatory issues and more general operational matters".[146]
In March 2014, ExCo comprised the Chief Executive, the seven Directors
of the constituent divisions of the FCA, and the General Counsel.[147]
110. Zitah McMillan told us that Martin Wheatley,
as Chief Executive, "owned" the FCA's overall communications
strategy.[148] Mr Wheatley
confirmed this, saying that he "discussed" the FCA's
communications approach with Ms McMillan, but that "it was
very much my strategy".[149]
111. Mr Wheatley said that other ExCo members were
as engaged as they needed to be on the FCA's communications strategy,
though were probably less engaged than himself.[150]
Clive Adamson also said that he felt that ExCo was sufficiently
engaged in the FCA's communications strategy, and in particular
that the general aims and purpose of the strategy were discussed
and agreed by ExCo.[151]
112. Despite this general level of engagement, Mr
Adamson did not recall ExCo discussing the specific proposal to
pre-brief its Business Plan, and—though Mr Wheatley recalls
such a discussion—there is no minute of one.[152]
Simon Davis also reported that aspects of the operational framework
for the communications strategy went without formal ExCo discussion:
the practice of pre-briefing was never "formally authorised"
by ExCo, although it was "authorised implicitly" since
it was known to and participated in by several of its members.[153]
113. Mr Wheatley, Mr Adamson and Ms McMillan told
us that ExCo had never discussed the general risk that the FCA's
communications could significantly move markets.[154]
Ms McMillan said her assumption was that "everybody would
think that an organisation who is the regulator could move markets",
and that it was not odd that she did not raise the issue with
ExCo.[155] Mr Wheatley
said that it was not a discussion that ExCo needed to have in
respect of the FCA Business Plan pre-briefings, because "it
was only safe stories that were going to be briefed".[156]
114. However, as described, Mr Adamson told the Committee
that even information that was not judged to be price sensitive
could be construed as such or become so through being reported.[157]
He also said that this realisation had come as a surprise to the
FCA.[158] Asked if
the Committee should be shocked that this had come as a surprise,
given the level of regulatory experience in the FCA, Mr Adamson
said:
Indeed you could. The only thing I would say
to that is […] that we have had no such incident before.[159]
115. Given this, the FCA might have been expected
to consider how the market could respond to announcements even
when they were not judged to be price sensitive, and how the FCA's
methods of communication could influence this. It appears that
ExCo members did in fact discuss the risks informally. In an email
exchange between several members of ExCo in early March 2014,
Chris Woolard, then Director of Policy, Risk and Research, suggested
that the FCA should treat market study announcements as market
sensitive by default, and not therefore pre-brief them. Sean Martin,
the FCA's General Counsel, agreed, as did Ms McDermott, who added
that "as market regulator we perhaps have to be more careful
about this than other regulators might have to be".[160]
However, no formal discussion of these issues—including
whether there was potential for pre-briefings to result in a disorderly
release of sensitive information—took place.[161]
116. Mr Davis was critical of ExCo's failure to discuss
properly the pre-briefing strategy:
Taking into account […] that this was the
first time there had been any pre-briefing of the Business Plan,
the lack of clarity around the decision-making at the ExCo level
in relation to pre-briefings, and the denial of knowledge by the
Director of Communications of the exclusive pre-briefing strategy
other than a general awareness that there was to be a "trailing"
of a few stories in the press (and in any event the lack of her
involvement) are all serious concerns.
The lack of consideration by the ExCo as to any
possible risks being run, including the possible dissemination
of price-sensitive or misleading information, and "the lack
of any agreement as to the criteria to be applied when pre-briefing,
are all further serious concerns.[162]
117. In his final conclusions, Mr Davis criticised
ExCo's oversight of the FCA's communications operations:
The ExCo bears collective responsibility, together
with the Board, for the inadequate controls which exist, but also
bears collective responsibility for the failure to address the
issues of price-sensitive information or market impact, or any
other possible consequences of the revised approach to the Business
Plan. It also bears collective responsibility for the pursuit
of an inadequately controlled pre-briefing strategy […].[163]
118. The
fact that care must be taken in communications, to prevent them
from having unintended market effects, should be an overriding
principle for any regulator—particularly so for one including
the UK Listing Authority. It should be far more prominent in the
regulator's consideration of its communications strategy than
the pursuit of media coverage. But, in the FCA's case, it was
not.
119. Martin
Wheatley told the Committee that members of the FCA's Executive
Committee were as involved as they needed to be in the FCA communications
strategy, yet the risk of the FCA's communications having an unintended
price-sensitive effect was never discussed. Ms McMillan and Mr
Wheatley told us that no discussion was necessary—the former
because it was assumed that members were aware that the regulator's
communications could be price sensitive, and the latter because
the FCA never planned to pre-brief sensitive information. The
events of 27 and 28 March showed that these assumptions were misplaced.
120. Mr Davis
described various aspects of the Executive Committee's handling
of the pre-briefing strategy—its lack of clarity about decision-making,
its lack of consideration of any possible risks, and the lack
of any agreement about the circumstances in which pre-briefing
was appropriate—as "serious concerns". Taken together,
they demonstrate a serious failure of the Executive Committee's
control of the pre-briefing strategy. The Committee has also considered,
however, whether this incident indicates a broader failure by
Executive Committee members to consider the implications of the
FCA's communications strategy for the FCA's objectives.
121. The evidence
of the Davis report has demonstrated that the individual members
of the Executive Committee had all of the information they needed
in order to engage in a full discussion of the FCA's communications
strategy and its operation. Executive Committee members had discussed
by email in March 2014 the risks of price-sensitive information
being briefed to the press, and most were aware that the FCA conducted
pre-briefings. But these individual points—which together
highlighted risks in the strategy of using the media to communicate
with firms, and handing editorial control to the media to secure
that coverage—were never put together. A full discussion
of the risks implied by the strategy never took place.
122. Had the
Executive Committee fully considered the FCA's communications
strategy, it might have realised that it involved risks to the
FCA's statutory role in respect of price transparency and the
orderly operation of the financial markets. These risks might
then have been better controlled. Instead, it appears that the
Executive Committee merely 'rubber-stamped' the communications
strategy. In doing so, it failed to engage fully in the question
of how the FCA should use communications in a way that helped
to advance its objectives—or was at the very least consistent
with them. This was a serious failure by the FCA's most senior
managers.
A failure to share expertise in
price sensitivity
123. The FCA contains the UK Listing Authority. In
this capacity it has set out a series of 'Listing Rules' and 'Disclosure
and Transparency Rules', which require firms to adhere to certain
standards when handling 'inside information'.[164]
The FCA has also published a series of 'Market Watch' documents
for non-regulated and non-listed firms, setting out points of
good practice in the handling of inside information.[165]
In particular, Market Watch Issue No. 37 sets out guidance discouraging
'strategic leaks'—that is, "deliberate leaks of inside
information sanctioned by the senior management of an issuer or
its advisers with the intention of achieving a strategic advantage
through media positioning".[166]
124. However, the FCA's focus on issues of price
sensitivity seems to have been largely absent from its consideration
of the pre-briefing of its business plan. Simon Davis concluded
that there were a number of control failures in the FCA regarding
price sensitivity:
The procedures
which exist within the Supervision and Communications Divisions
relating to price-sensitive information (including as set out
in the divisional policies and the Employee Handbook) are inadequate
and not of the standard which the FCA expects of those it regulates.
There are no policies within the Supervision
or Communications Divisions that seek to implement procedures
consistent with those recommended by the FCA in external publications
(for instance, Market Watch Issues No. 21, 27 or 37, described
further below). There is no policy or detailed guidance (at least
within the Supervision and Communications Divisions) to help staff
identify what is price-sensitive information and to appreciate
when issues concerning price-sensitive information might potentially
arise or more generally the possible market abuse implications.
There is also no training provided to employees
within these Divisions on the identification, control or handling
of price-sensitive information or any possible market abuse implications.
Our understanding is that the limited
controls that do exist in relation to information classification
are not adhered to strictly.[167]
No process was followed to confirm whether or not
the information to be given to the Telegraph was likely to be
price-sensitive, Mr Davis concludes, because no process existed.[168]
125. James Palmer expressed surprise that staff in
the communications area showed little awareness of price sensitivity:
I would have expected all the communications
people to have been trained to a level to have thought about price-sensitive
information and to apply that generally to all external communication
of any material initiative.[169]
While Mr Davis told us that he "wouldn't necessarily
go so far as to say that [communications staff] should be turned
into the experts on what is or is not price-sensitive information",
he did say that "they should at least have enough to be able
to ask the right questions and to be able to say, 'This doesn't
feel right to me'".[170]
126. As well as agreeing that communications staff
should be broadly aware of price sensitivity, Mr Davis also told
us that the Markets area should be aware of the FCA's communications
approach:
[S]hould not the Markets Division or those who
are very knowledgeable about areas of price-sensitive information
be aware that this kind of strategy is in place and be aware of
the kind of material that is being supplied? The answer to that
is yes.[171]
However, Mr Davis said that David Lawton, then-Director
of Markets at the FCA, had not been aware of the particular strategy
to pre-brief the business plan.[172]
127. Mr Davis said that, while the Markets area were
"by and large, experts on what is meant by price-sensitive
information", they would need to consult with the specialists
in the subject in question—in the case of the Telegraph
pre-briefing, the supervision team responsible for the Thematic
Review—to establish the context to decide whether particular
information was price-sensitive.[173]
128. Mr Davis recommended in this Report:
that there be substantial improvement in the
procedures relating to the identification, control and release
of price-sensitive information, and the market abuse implications
of a wrong decision. This should include, not only centralised
policies and training, but also detailed procedures tailored for
the relevant business team.[174]
129. The FCA accepted Mr Davis's recommendations,
saying in its response to the Report:
We have introduced substantial improvement in
the procedures relating to the identification, control and release
of price sensitive information. We have informed staff of the
revised policies and guidance. We have begun central training
about these revised procedures for all managers and further training
and awareness initiatives will be rolled out to all staff within
their divisions shortly.[175]
130. As examined in a later section, the UK Listing
Authority was also insufficiently consulted on 28 March when share
prices began to fall in response to the Telegraph article. Clive
Adamson failed to alert UKLA when he became aware that a "price-sensitive
issue" had arisen. Zitah McMillan failed to alert the Markets
area of the FCA when she learnt that the Telegraph article had
misreported the facts of the life insurance review. More generally,
staff in the Media Relations team and the Supervision Division
were briefing the media, the ABI and insurance companies to clarify
the scope of the review, without consulting UKLA on whether these
briefings may be price sensitive, and whether individual briefings
were appropriate at all. [176]
131. Since 2001,
the UK Listing Authority has formed part of the FCA or its predecessor
the FSA. The FCA is therefore the UK's primary repository of expertise
on listing requirements and the importance of clear communication
to the market. This expertise seems to have been wholly absent
from the FCA's consideration of the pre-briefing strategy.
132. Simon Davis
concluded that the FCA's procedures in respect of price sensitive
information were "inadequate and not of the standard which
the FCA expects of those it regulates". Mr Davis's report
makes clear that on some of the most important issues on which
the FCA imposes guidance on firms, it imposed no guidance on itself.
In particular, there were no policies consistent with the guidance
the FCA issues for regulated firms on the handling of price sensitive
information, no guidance designed to help staff to identify price-sensitive
information, and no relevant training provided to employees. Worse
still, such limited controls as did exist were not adhered to
strictly. Were a regulated firm to have behaved similarly, the
FCA would—rightly—have considered it a serious omission.
For a regulator to have behaved in this way was serious. For a
regulator containing the UK Listing Authority, it was shocking.
This was a case of 'do as I say, not as I do'.
133. Mr Davis
recommended several improvements to controls over price-sensitive
information, which the FCA has since made a commitment to implement.
But the Committee has seen no evidence to suggest that the FCA
has assessed the wider question of whether there might be a problem
of culture, rather than just controls—of a failure to share
expertise across the different areas of the organisation. This
sort of failing could have been mitigated by proper discussion
at the Executive Committee—the forum at which the constituent
parts of the FCA come together—of the risks involved in
the FCA's communications strategy and their possible implications
for the FCA's objectives. As noted, no such discussion took place.
134. The expertise
of the UK Listing Authority was not only absent from the FCA's
consideration of the communications strategy. On the morning of
28 March, Clive Adamson and Zitah McMillan both failed to consult
the UKLA when they became aware that the Telegraph article had
given a misleading impression to the market. Supervision and communications
staff also failed to consult UKLA when they began to issue ad
hoc clarifications to the press and the industry about the scope
of the Life Insurance Review. In the event, the problem was brought
to the attention of the Head of the UKLA by his own staff, who
had observed the movements in share prices. It was not until 12.02pm
on 28 March that the Head of the UKLA was provided with all of
the information he needed to advise Martin Wheatley that the FCA
should immediately issue an official clarifying statement.
135. The non-executive
members of the FCA Board should assess the extent to which the
FCA may suffer from a culture of working in silos and of inadequate
information sharing. It should take steps to ensure that staff
at all levels across the organisation have a good knowledge of
the objectives of other divisions of the regulator, and some familiarity
with the areas of expertise of those divisions. Otherwise, incidents
such as those on 27 and 28 March, in which one area of the FCA
unwittingly acted in a manner harmful to the objectives of another
area, will be likely to occur again.
An ineffective relationship between
the communications area and supervision
136. The
Davis Report describes several failures of control in the FCA's
communications operation, which contributed to the events of 28
March, including:
· Quotations
from the Telegraph's telephone interview with the FCA—in
which Clive Adamson did not participate—were attributed
to Mr Adamson without his knowledge, but with the permission of
a junior member of staff in the communications area;[177]
· FCA
communications staff did not record the telephone interview;[178]
· There
was confusion within the communications area about what constituted
standard FCA practice in some cases; for example, whether telephone
interviews should always in fact be recorded;[179]
· In
giving a telephone interview at all, the FCA handed control over
how the Life Insurance Review was to be reported to the Telegraph;[180]
· As
described above, the FCA failed to consider whether the pre-briefing
was price sensitive.[181]
In its response to the Davis Report,
the FCA said that it was "developing new operational protocols
which will apply to communications with our audiences, including
the media".[182]
137. Beyond
these control failures, however, Simon Davis's report contains
a number of extracts from internal FCA emails, which suggested
that the communications area was seeking to publicise the work
of the supervision area in a way with which the latter was uncomfortable.
138. Several emails from 20 and 21 March 2014 show
that the supervision area was uncomfortable with the media team's
planned briefing on the life insurance review. An associate in
the supervision team twice made the point that the media team's
proposed written briefing placed too much emphasis on exit fees,
saying that "the wording for exit charges looks like we are
actively looking to do something".[183]
As described above, this emphasis on exit fees was
one of the main exaggerations of the eventual Telegraph article.
139. The same supervision associate emailed the media
team on 21 March, asking if the story could be postponed
in the wake of the pension reforms announced in the Budget on
19 March.[184] The
media associate leading the pre-briefing of the Thematic Review
said he would "still like to aim for Tuesday next week"
because, given the large number of planned consumer-credit stories,
"if we want to get some cut-through for this one we need
to go a bit earlier".[185]
The supervision associate replied:
[W]e are probably not as keen as you that this
needs to go out early next week as I am sure you have gathered—although
I understand your reasons.[186]
140. A
senior associate in the 'Life Insurance Themes' team later emailed
the supervision associate, suggesting that he shared the latter's
concern:
Isn't there a risk with announcing this next
week that this just piles the misery onto life companies? They
have taken a battering this week and I think the news that we're
going to be sniffing around legacy business is only going to make
matters worse.
Surely better to let the "froth" die
down a little bit, or at least not having such a negative view
in the key messages below and position more about we are doing
this review to confirm whether life insurers are treating all
consumers fairly rather than go specifically into the concerns
we have?[187]
And, later on 21 March, a technical
specialist in the supervision team emailed her head of division,
saying:
My view is that we shouldn't do a press story
on this but there is a lot of pressure from Comms on this (it
may be picked up anyway and then the messaging is out of our control
[…]).[188]
141. Similar
exchanges took place on 25 March in respect of a separate pre-briefing
on packaged bank accounts. The media associate in charge of this
pre-briefing emailed the relevant supervision team with some proposed
briefing lines. A member of the team replied, questioning the
tone of the draft release:
I'm not sure about the tone of this. I will consult
with [a member of the review team] and get back to you. I'm not
sure [Mr Adamson] would want to have an opinion on whether it
was "right" for firms to withdraw from the market for
example.[189]
However, the media associate persisted
with his proposal:
On the tone / quote—can
I request that we let [Mr Adamson] decide?
He may well agree with you, but as these stories
are trying to highlight our consumer protection credentials as
part of the one year anniversary, I'm keen that we align ourselves
with the 'man on the street' view and try and push the boundaries
a bit compared to what we would normally say.
I'd also argue that [Mr Adamson] is on safe ground
by agreeing that if firms are selling packaged accounts improperly,
they should stop. I don't think there's anything too controversial
there.[190]
142. The
supervision team member, however, continued to disagree strongly
with the line proposed by the media team:
For the record, I don't think the tone is right,
and I don't want the email to go up implying I have signed it
off. Your text below doesn't say "firms selling PBA's improperly
should stop". It says "firms have mis-sold PBAs in the
past", and implies that this was widespread. To be clear,
we have no evidence to support that assertion.
We are not the man on the street. The FCA saying
there has been mis-selling is an invitation to the CMCs to launch
a new salvo of claims on the banks (a la PPI). We must
avoid provoking this unless we have clear evidence of misselling.
By all means send the text up unaltered, but
I will brief against it. As you say, it is up to [Mr Adamson]
to decide what he wants to say. I have worked with [Mr Adamson]
extensively though, and can tell you with a fair certainty that
he won't like the quote as written. [Original emphasis][191]
143. Zitah
McMillan told us that she was "deeply disappointed"
to read in the Davis report that her staff had been putting pressure
on the supervision area:
Had you asked me even during the process of the
inquiry being carried out, I would not have said that that was
the relationship my teams had with their colleagues. […]
I thought it was absolutely dreadful to read that a team within
supervision felt that my team had been aggressive.[192]
Ms McMillan also said that there "should always
be a balance between what you think and what your colleagues may
think in other parts of the organisation". But she concluded:
The checks and balances in the system ought to
be sufficient. Sadly, on this occasion they absolutely were not.[193]
144. The
events of 28 March were in part the result of a series of significant
control failures in the FCA communications division. Mr Davis
describes these failures—including the unauthorised attribution
of quotations in the Telegraph article to Clive Adamson, the failure
to record the telephone interview with the Telegraph, and the
apparent confusion within the communications area as to whether
this last failure was standard FCA practice—in detail. Mr
Davis suggests a number of procedural remedies for these failures.
145. The problems
in the FCA's communications area revealed by this episode appear
to range far wider than points of procedure. Evidence in Mr Davis's
report left the impression that there were shortcomings of standards
and culture in the FCA's communications division. Staff in supervision
described the communications team as putting "a lot of pressure"
on them to pre-brief the Life Insurance Review to the Telegraph,
even though the supervisors themselves considered this to be risky.
Other exchanges show supervision staff raising concerns about
the tone of draft press releases, and the communications area
resisting their suggested changes to those drafts. Simon Davis
did not draw any conclusions from this about the culture of the
FCA, and did not propose any remedies.
146. The communications
area of an organisation will, and should, contain staff who are
skilled at conveying messages to various different audiences.
These staff should advise the other divisions of the FCA on how
best to communicate their work. But they should not seek to override
the expert views of these areas—supervision, markets and
enforcement—when those areas are more familiar with the
substance of the work, its likely effect on the industry and the
market, and the risks involved. This should be the case at all
levels of the FCA, and should be reflected in interactions between
junior supervision and media staff, as well as between Executive
Committee members. The FCA's Executive Committee needs to satisfy
itself that the working relationship between the communications
area and other areas of the FCA is appropriate, and take action
to address this if it is not.
A failure of co-ordination between
senior staff on 28 March 2014
147. When the markets opened on the morning of 28
March—following the publication of the online and print
editions of the Telegraph article—the share prices of several
major life insurance firms fell. By around 11.30am, the share
price of some firms had fallen by as much as 21 per cent.[194]
148. The Davis Report examines in depth the actions
of senior FCA staff as the regulator responded to the market reaction
on 28 March. In summary, Clive Adamson was made aware that a price-sensitive
event had occurred at 8.53am, by a telephone call from "furious
representatives of a major insurance company", who asked
the FCA to issue a retraction.[195]
Mr Adamson, in conjunction with supervision staff, then proceeded
to draft a clarifying statement. But he failed to alert Mr Wheatley,
Ms McMillan, or David Lawton—then-Director of Markets at
the FCA—to the incident, and the clarifying statement was
not issued to the market as a whole. In any case, Mr Davis concluded
that the statement was "inadequate"—in part because
it failed to mention exit fees. One of the affected insurance
companies in fact concluded that Mr Adamson's draft statement,
if released, would have "added fuel to the fire".[196]
149. Marc Teasdale, Head of UKLA, became aware of
the share price movements at 9.15am.[197]
While UKLA and the Market Monitoring teams considered whether
the FCA should issue a clarifying statement, they had "no
information available to them to inform that decision".[198]
Staff in the Markets area escalated the issue to Mr Lawton, who
called Ms McMillan at 10.07am to discuss the matter.[199]
But Mr Lawton was not aware that the content of the Telegraph
article was inaccurate, and the responsible media team had not
informed Ms McMillan as they had not considered it necessary to
involve her.[200] Mr
Davis reports that, following the call:
Mr Lawton did not contact Mr Adamson or otherwise
conduct further inquiry. He also did not escalate the issue to
Mr Wheatley. Ms McMillan learnt at about 10.15 am from the Media
Relations team that it thought that there had been misreporting
by The Telegraph but she did not tell Mr Lawton.[201]
Despite not seeking clarification from the supervision
department, Mr Lawton concluded that no clarifying statement was
necessary.[202]
150. Mr Davis reports that Mr Wheatley's office began
to take on a co-ordination role in the mid-morning. At 11.30am
he requested that Mr Teasdale revisit Mr Lawton's decision not
to issue a clarifying statement. Mr Teasdale subsequently concluded
that clarification was in fact necessary, and a draft statement
was prepared and circulated to relevant senior FCA staff at 12.32pm.
In part because the draft statement was examined and discussed
via email, rather than in an urgent meeting or conference call,
it took until 2.01pm for a final statement to be agreed. It then
took a further 26 minutes for the statement to be issued to the
market, because the FCA had to prepare an RNS message. Part of
this last delay was "because the process for issuing the
statement to the market had not been considered earlier in the
day".[203]
151. Overall, Mr Davis concluded that the FCA's response
was "seriously inadequate and fell short of the standards
expected of those it regulates".[204]
He found that while the FCA does have a number of business continuity
or 'disaster recovery' plans intended to address situations where
there is an interruption to the FCA's business-as-usual operations,
those plans were "not applicable to the events of 27 and
28 March 2014". Similarly, while the communications area
had a policy for the creation of an 'Issues Response Team', the
aim of which was a process to ensure the "effective media-handling
of specific crisis issues affecting regulated firms", it
did "not address a situation where the FCA is required, in
response to media or market speculation, to correct a story about
the activities of the FCA". In any case, this plan was intended
only to involve the communications area and the relevant individual
area of the FCA, not the Executive Committee in its entirety.[205]
152. Mr Davis recommended that the FCA "urgently
put in place price and volume monitoring procedures, combined
with an action plan for the effective management of the FCA's
reaction to any issues involving the uncontrolled release of price-sensitive
information originating from or involving the FCA".[206]
153. Given the number of failures by senior FCA staff
to escalate the issue to Mr Wheatley, or properly to co-ordinate
with each other, the Committee asked Mr Davis whether, beyond
the particular failure of the FCA to have in place an emergency
action plan, there was a systemic failure of co-ordination at
the FCA. He said:
I have said that there was a lack of controls;
whether you regard lack of systems and controls as being systemic
I suspect I am dancing on the head of a pin. I have concluded
that there was a lack of controls and I have gone into some detail
in the recommendations to try to make sure that any gaps in the
organisation are appropriately filled so this doesn't happen again.[207]
Rather than speaking of a systemic problem across
the FCA, Mr Davis preferred to say that "there were inadequate
controls in relation to the control of the media" and that
"the system broke down".[208]
154. Mr Adamson similarly declined to say that the
incident suggested systemic problems at the FCA:
I think this event exposed a breakdown of controls
in multiple places, both within supervision, which is my area,
that I take responsibility for, in communications and in UKLA.
Systemic, to me, means much more, "There is a very systemic
problem in the organisation", which I do not think there
is. This event exposed, as I said, a multiple breakdown across
many areas.[209]
This particular event clearly exposed, on the
day, a lack of co-ordination and […] I do not think there
is a systemic issue of co-ordination. I think this exposed a particular
issue on the day.[210]
Ms McMillan also said that she did not think the
events of 28 March showed a "fundamental breakdown in general
terms", and that the problem was "not systemic".[211]
155. Mr Adamson, however, suggested that the FCA's
method of decision-making might have been partly to blame:
The way culturally the FCA makes decisions is
essentially through a formal decision-making process of committees,
written reports and so on. That does not work particularly well
in a crisis. One of my reflection points for the organisation
going forward is I think it has to think very hard about how to
make sure that, while formal decisions are taken correctly through
committees, in a crisis it needs to act differently. One of the
things this exposed in the organisation is in a crisis it does
struggle to operate because it is used to a different method of
decision-making.[212]
156. Mr Wheatley said that the events in question
were the result of "poor decisions on the day that obviated
the controls that did exist".[213]
He also highlighted a number of changes that the FCA had made
that would help it better respond to incidents in future:
We have changed a number of processes as a result
of that. One of the processes is notification, so if there is
something that moves beyond a certain parameter in the market
that is notified, not just to the market monitoring team but to
the executive committee now. So whenever that happens there is
something that goes out as a flash and my request every time is
to say, "Tell me if there is an obvious public explanation
of that flash or not" so that is now in place. If there is
not an obvious public explanation for that flash then it escalates
to me as to what level of rapid response we need to put in place.
That did not happen on the day, and that is something we have
had to change subsequent to that.[214]
157. However, Mr Davis ultimately concluded that:
It should not, in any event, have needed a formal
plan for the senior executives of the FCA to have co-ordinated
effectively and urgently to investigate what had happened, consider
whether a holding or clarifying statement was required and to
issue any such statement as a matter of extreme urgency, taking
into account the FCA's overarching strategic objective being to
ensure that the financial markets function well.
The relevant senior executives failed not only
to co-ordinate, but there was a lack of sufficient urgency.[215]
158. Simon
Davis concluded that there was "a failure of co-ordination
between the senior executives at the FCA" on 28 March, and
a "lack of the urgent actions that the FCA would expect of
a listed company in similar circumstances". The incident
could have been resolved much more quickly—thus avoiding
some of the damage suffered in the life insurance market—if
senior executives had shared information with each other and come
together quickly to agree a response. Instead, the delay of six
hours before a corrective statement was issued caused damage to
the credibility and reputation of the FCA.
159. Simon Davis
found that the FCA did not have a plan for dealing with a situation
such as that which arose on 28 March. The lack of any formal contingency
plan for dealing with this kind of emergency situation was a serious
failure of the FCA's management. An emergency plan to bring together
the FCA's leadership in response to such a major event should
have been considered a basic requirement. The Committee welcomes
the FCA's acceptance of Mr Davis's recommendation that a formal
plan should be put in place.
160. In addition,
as Simon Davis concludes, senior executives should not have needed
a formal emergency plan in order to co-ordinate their response
to the events of 28 March. This is not least because the FCA's
over-arching strategic objective to ensure that the relevant markets
function well should have already focused senior staff on such
a serious market-moving incident. The fact that this did not happen
may or may not suggest a problem with standards and culture within
the FCA, with even the Executive Committee failing to take sufficient
initiative in response to a crisis or to keep the FCA's objectives
fully in mind when deciding on a course of action. The non-executive
members of the FCA Board should investigate further to establish
whether this is the case and, if so, what the remedy should be.
146 Financial Conduct Authority, 'Our Executive Committees',
accessed 11 February 2015 Back
147
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 6.11 Back
148
Q 205 Back
149
Q 509 Back
150
Q 510 Back
151
Q 137 Back
152
Q 140; 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 10.6 Back
153
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 8.61 Back
154
Qq 139, 226, 511 Back
155
Q 227 Back
156
Qq 511, 514 Back
157
Q 161 Back
158
Q 162 Back
159
Q 163 Back
160
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 8.43-8.59 Back
161
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 10.22 Back
162
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 10.21-10.22 Back
163
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 19.11 Back
164
Financial Conduct Authority, FCA Handbook, 'Listing, Prospectus
and Disclosure'; 'Inside information' is defined in Section 118C
of the Financial Services and Markets Act 2000 Back
165
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 7.8.
'Market Watch' documents were first published by the FSA, then
inherited by the FCA upon its inception in April 2013. Back
166
Financial Conduct Authority, 'Market Watch, Issue No. 37', page
1 Back
167
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 7.41-7.44 Back
168
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 4.60 Back
169
Q 312 [James Palmer] Back
170
Q 29 Back
171
Q 26 Back
172
Q 26 Back
173
Q 27 Back
174
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 19.32 Back
175
Financial Conduct Authority, 'Our response to the Davis Report',
10 December 2014, paragraph 3.5 Back
176
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 15.44,
4.81, 15.105 Back
177
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 4.36-4.37 Back
178
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 4.38 Back
179
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 12.2 Back
180
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 12.43 Back
181
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 12.41 Back
182
Financial Conduct Authority, 'Our response to the Davis Report',
10 December 2014, paragraph 3.9 Back
183
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 11.47,
11.55 Back
184
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 11.45 Back
185
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 11.48 Back
186
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 11.60 Back
187
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 11.61 Back
188
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 11.65 Back
189
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 18.6 Back
190
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 18.7 Back
191
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 18.8 Back
192
Q 247 Back
193
Q 217 Back
194
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 17.2-17.4 Back
195
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 4.74-4.75 Back
196
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 4.75-4.76,
15.55 Back
197
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 4.79 Back
198
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 4.79 Back
199
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 15.88 Back
200
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 4.80,
4.70 Back
201
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 4.81 Back
202
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 4.80 Back
203
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 4.82-4.86 Back
204
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 4.5 Back
205
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 15.7-15.8 Back
206
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 19.63 Back
207
Q 18 Back
208
Q 19 Back
209
Q 151 Back
210
Q 168 Back
211
Q 266 Back
212
Q 168 Back
213
Q 521 Back
214
Q 529 Back
215
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 4.95-4.96 Back
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