A Financial Conduct Authority (FCA) decision to brief a national newspaper on its plans to review long-term insurance contracts - which prompted significant falls in the share prices of several major providers - was "high risk" and inadequate, according to an independent report by a law firm.
Clifford Chance partner Simon Davis, appointed by the regulator in April to review its handling of the affair, described the FCA's actions as well-intentioned but ultimately "high risk, poorly supervised and inadequately controlled".
When it went wrong, the regulator's reaction was "seriously inadequate and fell short of the standards it expects of those it regulates," the Davis report found.
In March, FCA director of long-term savings and investments Nick Poyntz-Wright briefed a Telegraph journalist on details of its soon-to-be-announced supervisory probe into the treatment of "long-standing" customers in insurance contracts.
Intially it had been reported that Clive Adamson had given the vital information to the paper that the FCA was due to announce the project - which would assess the contract terms of millions of policies - several days later.
The news prompted significant falls in the share prices of a number of life companies, including Aviva, Prudential and Legal & General.
The Davis report reveals staff working in the FCA's supervision division warned the regulator not to brief the newspaper. To do so would pile more "misery" on life insurers already reeling from the Budget announcements.
But the view held by the FCA was that its probe could be misunderstood when it was announced, and that early coverage might help avoid this.
Treasury committee chairman Andrew Tyrie, who at the time described the leaked details of the FCA's work as an "extraordinary blunder", said in May he welcomed the terms of reference of the independent review.
The committee is set to interrogate Davis about the review on 10 December.
FCA chief executive, Martin Wheatley, director of supervision Clive Adamson, director of communications and international Zitah McMillan and director of markets David Lawton will not be receiving a bonus for 2013/14 as a result of the failing.
The 2013/14 bonus payments for all other members of executive committee have been cut by 25%, the FCA said, adding other disciplinary action has been completed as appropriate.
Costs lawyers told Professional Adviser the Clifford Chance inquiry could cost in the region of £10m but in today's report the total expense is listed at £3.8m.
It has also been revealed that the law firm is on an FCA panel tasked with conducting its section 166 investigative work.
However, the regulator has refuted any suggestion of a possible conflict of interest, pointing out Clifford Chance has yet to carry out a S166 review.
