U.K. Insurers Hit With FCA Probe Into Life Policies

The U.K. markets regulator’s first birthday was marred by complaints from lawmakers about its handling of a leak that sent shares in insurance companies tumbling last week.

The Financial Conduct Authority’s private briefing to the press about an insurance-industry review was “damaging both to the FCA as an institution and to U.K.’s reputation for regulatory stability,” Chancellor of the Exchequer George Osborne said in a letter today.

The FCA is one of two regulators created a year ago out of the ashes of the scandal-plagued Financial Services Authority, which was widely criticized for failing to quell the 2008 financial crisis. The Bank of England, which assumed greater regulatory powers at the same time, faces its own internal probe into what it knew about potential manipulation of currency exchange rates.

“It wasn’t our finest hour,” Martin Wheatley, chief executive officer of the FCA, said in a speech in London yesterday. “I take responsibility for what happens in the organization.”

U.K. insurers, including Prudential Plc, Aviva Plc and Resolution Plc, had as much as $4.2 billion wiped off their market value on March 28 after the Daily Telegraph newspaper reported that the FCA would review 30 million life-insurance policies stretching back to the 1970s, citing Director of Supervision Clive Adamson.

Everything Possible

The regulator must “do everything possible to make good that damage,” Osborne said. “The starting point must be that the FCA holds itself to at least as high standards as it would expect of a listed company handling highly market-sensitive information.”

The FCA clarified later that day that it only intended to review a sample of firms, rather than each policy, and wouldn’t apply current standards retroactively.

The FCA’s board said last week that it would hire external lawyers to investigate the regulator’s handling of the matter.

“I suspect this is the shot across the bows the regulator needs,” Steven Francis, a financial regulation lawyer at Reynolds Porter Chamberlain LLP in London, said in a telephone interview today. “In the future they will be very aware that they will have an effect on the market, and I don’t mean that as a criticism, it’s just a sign of growing up.”

‘Extraordinary Blunder’

Osborne’s letter adds to lawmaker pressure on the regulator. Andrew Tyrie, chairman of Parliament’s Treasury Committee, said today that the group would hear evidence from the independent reviewer to be appointed by the FCA.

“We don’t yet know who will lead the independent inquiry,” Tyrie said. “That decision needs to be taken -- and made public -- soon.”

“The chancellor has today made clear that he shares the committee’s concerns over what appears to be an extraordinary blunder,” Tyrie said.

The internal probe must address “why and with whose knowledge and authorization this briefing was given,” and “where senior accountability should lie and what disciplinary action should be taken,” Osborne said.

Resolution and Phoenix Group Holdings, which manage closed books of older insurance policies, led the selloff last week, falling 7 percent and 12 percent respectively.

Legal & General, Britain’s biggest manager of pension assets, lost 3.5 percent, while Aviva fell 2.8 percent. The company said it expects any impact on profit to be “minimal if at all,” affecting less than 2 percent of the company’s embedded value.

Shareholders in insurance firms had already lost around 3.6 billion pounds ($6 billion) on March 19, when Osborne scrapped rules that pushed retirees to buy an annuity.

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