UK regulator in nightmare scenario over report on ‘zombies’

Martin Wheatley, Britain’s most senior financial regulator, is accustomed to being under fire. When he was a regulator in Hong Kong, in the wake of the Lehman crisis, investors burnt a funeral effigy of him outside his office, demanding he return home.

Nothing quite so dramatic has yet been seen outside the Financial Conduct Authority (FCA) head office in Canary Wharf, but pressure is mounting on Wheatley in the wake of the regulator’s inept handling of a leak last week of an insurance industry investigation.

Last Friday, billions of pounds were wiped from the value of the insurance sector, after a newspaper report of an inquiry into “zombie” insurance funds. Some 30 million people hold such legacy policies, dating back decades.

At issue is not just the fact that highly sensitive market information was leaked, but the length of time it took the FCA to clarify the reports of the inquiry, which was nowhere near as extensive as first thought. It was a full six hours from the start of trading last Friday morning before the regulator finally moved to clear up the confusion, saying it did not intend to review the 30 million policies individually, nor remove exit fees.

Wheatley has admitted it was “not the FCA’s finest hour” but is resisting calls for his resignation.

Andrew Tyrie, chairman of the influential treasury select committee, has blasted the regulator’s actions as “an extraordinary blunder”.

British chancellor George Osborne has weighed into the row too, with a strongly worded letter to the FCA in which he said he was “profoundly concerned” about the episode.

The chancellor demanded to know why the FCA took so long to issue a statement – and why it had selectively disclosed such market-sensitive information.

The leak, and subsequent market reaction, had, the chancellor said, been “damaging both to the FCA as an institution and to the UK’s reputation for regulatory stability and competence”.

The zombie-fund fiasco comes on the first birthday of the FCA, which was created on April 1st, 2013, to take on some of the responsibilities of the now defunct Financial Services Authority.

The FSA was deemed to have failed to see the credit crunch coming and to have been unable to deal with the crisis once it hit. Wheatley will be hoping no more similarities can be drawn between the FCA’s performance and that of its discredited predecessor.

A royal mess?
Another man under pressure is British business secretary Vin- ce Cable following a damning report into the under-priced sell-off of the Royal Mail.

The report, from the national audit office, said taxpayers lost £750 million (€904 million) in a single day after shares in the privatised Royal Mail were sold to investors at 330p last autumn, only to soar in value on the stock market when dealings began.

Royal Mail shares ended their debut day at 455p, but had they been sold at that price in the first place, the government would have raised an extra three-quarters of a billion pounds. The shares broke through the £6 level earlier this year and are still trading way above the float price, at 565p.

Cable has dismissed the spike in the shares as “froth” and repeated that view in the House of Commons yesterday, as he was called to answer an emergency question on the report. “The last thing I intend to do is apologise,” he told MPs.

Fiona Walsh is business editor of theguardian.com