City watchdog Martin Wheatley came in for criticism yesterday as the £3.8m Davis report on the regulator’s handling of media briefings was released to the public.
The Financial Conduct Authority’s (FCA) chief executive will forgo his bonus for 2013-14 as a result of the findings, as will David Lawton, director of markets, Zitah McMillan, director of communications and international, and Clive Adamson, director of supervision. McMillan and Adamson are soon to leave the organisation, although the FCA’s chairman John Griffith-Jones insisted that their departures were connected to a recent restructure and had “absolutely nothing to do with the events of the Davis report”.
The regulator sent the insurance market into crisis on 28 March, after a pre-briefing on its forthcoming life insurance review led to an article being published by The Telegraph, stating that the organisation was to launch a review into 30m policies. The regulator failed to clarify that its review would have a much narrower scope until late the following day.
Clifford Chance partner Simon Davis was brought in to investigate the incident, and found that while the FCA’s strategy of giving an advance briefing to The Telegraph was “well-intentioned”, the way in which it was pursued was “high risk, poorly supervised and inadequately controlled”. He added: “When it went wrong, the FCA’s reaction was seriously inadequate and fell short of the standards expected of those it regulates.”
Although he praised Wheatley as the one executive who tried to organise an FCA reaction, Davis noted that further delays took place in the process of doing so, and stated that Wheatley should have “insisted that all relevant individuals met in person or by telephone urgently to finalise the clarifying statement”.
Griffith-Jones revealed that nine major insurance companies had complained to the regulator about the affair, and said that they would potentially seek compensation for the difficulties brought about by the regulator, although none have threatened to sue so far. However, he added: “Legal advice is that no compensation is due. We will not be setting aside an amount for legal damages.”
The Davis report tells the story of an FCA pursuing the wrong strategy in the wrong way. The catalogue of errors made across the organisation is shocking – and some of the errors went to the top.
ANDREW TYRIE MP
I want on behalf of the FCA board to apologise both for the mistakes that were made and for the shortcomings in the systems and controls that this report has revealed.
FCA’S JOHN GRIFFITH-JONES
Wheatley got a grip on the situation once he got on the case. My board has total confidence in Martin.
Some of the things that we do are necessarily quite confrontational with the firms when things go wrong. You need a suitably robust person at the head of this organisation and I think we’ve got the right man.
We consider that if its communications strategy is to be used in order to build the FCA’s reputation and credibility as a regulator, the FCA should adopt a factual, evidential approach to communications, avoiding sensational headlines where possible.
When it[s media strategy] went wrong, the FCA’s reaction was seriously inadequate and fell short of the standards expected of those it regulates.
PROFILE: SIMON DAVIS
In April, the FCA’s independent directors appointed Clifford Chance litigator Simon Davis to conduct an inquiry into the financial regulator’s now-infamous announcement of an investigation into the insurance industry.
Davis is a commercial litigation partner of considerable repute, with more than 25 years’ experience of effective dispute avoidance and resolution. Over his career, he has resolved the problems of a range of corporate and financial institutions – both internally, involving directors and shareholders, and externally, with regulators and trading partners.
A former president of the London Solicitors Litigation Association, Davis is a member of the Council of the Law Society, a committee member of the City of London Law Society, a member of the Court of Appeal Mediation Panel and an accredited CEDR mediator. He is also ranked No 1 in litigation in The Chambers 100 Guide, a list of the 100 best business lawyers in the UK.
A source close to Davis told City A.M.: “Simon is a very able, very pleasant, genuine and open sort of guy. Clever, but not an absolute intellect – he’s much more common sense and application than pure brilliance. He’s well liked and his opinions have always been well considered and well thought out. He was the man who led the review of the RBS corporate enforcement team the year before last, so he’s got form. He’s also led with Barclays on the various investigations there post-crisis. He’s been with Clifford Chance all his career, and has always been involved in thorny complexities which he’s been able to reduce to a straight-forward and rather simplified understanding. So he’s the perfect man for the job. He’ll tell it as he sees it and will see it through the eyes of the public.”
Davis graduated from Oxford’s Magdalen College in 1977. He was articled at Clifford-Turner in 1982 and was admitted as a solicitor in England & Wales in 1984. He served as the Clifford Chance’s recruitment partner between 1995 and 2000. He currently lives in Tooting with wife Jane, 15-year-old son Gabriel and 13-year-old daughter Laura, along with two family cats.