The U.K. finance minister has waded in to the storm over the City regulator's insurance investigation, writing to the watchdog to raise his profound concerns over damage to the country's reputation "for regulatory stability and competence."
George Osborne wrote to the Financial Conduct Authority (FCA) after an article in the Daily Telegraph last Thursday revealed the institution was set to investigate 30 million life insurance policies worth £150 billion ($249 billion) sold over the last four decades. The FCA also hinted it may intervene into the area of high exit charges.
The report saw U.K. insurance stocks plummet, wiping millions of pounds off the shares of major firms such as Legal & General and Aviva. The FCA Friday hurriedly issued a statement clarifying that it would not individually review 30 million policies and did not intend to look at removing exit fees.
Still, the damage had been done and, in his letter, Osborne asked the watchdog why "the FCA's clarificatory statement was issued so late the day after the story was published." He said that the "events go to the heart of the FCA's responsibility for the integrity and good order of the U.K. financial markets."
The FCA stated last Friday that it its board will conduct an investigation into the handling of the issue involving an external law firm, a move Osborne welcomed.
"It is essential that this inquiry is – and is seen to be – completely independent of the executive…It is clearly essential that the report is published and that it is thorough, objective and commands confidence," he wrote.
"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, and should hold its own staff to the same standards it would expect of any approved person," he added.
Osborne said the inquiry must reveal what lessons can be learned regarding the FCA's interaction with the media and "what disciplinary action should be taken."
Many in the insurance industry have called for the FCA's Chief Executive Officer Martin Wheatley to step down for the way the authority handled the situation.
In response to Osborne's letter, the FCA Chairman John Griffith-Jones wrote back to the Chancellor, saying that the board shared similar concerns and that "we will ensure that all the issues raised in your letter are reflected in the terms of reference of the inquiry."
A spokesperson for the Association of British Insurers (ABI) said that they wrote to Osborne on 1 April and called for a completely independent inquiry.
"The events of last week were very serious and we believe the investigation into the regulator needs to be completely independent, the regulator cannot investigate itself," the statement read. "We're suggesting that government, industry and regulators need to sit down and have a longer term dialogue about how we can work together in future. Our letter is not calling for heads to roll, but for lessons to be learned to ensure that this issue does not happen again."