City Watchdog Faces Backlash Over Inquiry PR
The City watchdog is facing a backlash for spending thousands of pounds of fees paid by the financial industry on public relations advice amid an inquiry into its conduct.
Sky News understands that the board of Financial Conduct Authority (FCA) has appointed FTI Consulting, one of the City's leading PR firms, to provide "communications support" while an external law firm probes the events which led to a day-long panic among insurance company investors.
The inquiry, which is being conducted by Clifford Chance for a fixed fee that will also be paid out of industry subscriptions, was triggered by the briefing of a national newspaper in March about a probe it was launching into certain aspects of the closed-life insurance industry.
The FCA failed to issue a public statement to clarify the newspaper story until almost six hours after share trading had commenced, by which time the share prices of companies such as Aviva, Legal & General and Resolution had been hit hard by investors' interpretation of the potential impact on them.
The decision to spend substantial sums on external PR advice - the precise amount would not be disclosed by either the FCA or FTI Consulting - drew criticism from insurers and politicians.
John Mann, a member of the Treasury Select Committee, told Sky News: "They're trying to gloss over the mistakes they made and that's neither fair nor reasonable."
One insurance industry executive said it "beggared belief" that fees contributed by regulated firms were being used to provide advice to the board of the watchdog.
"This is money that we and other firms have paid into the FCA's coffers, and now it is being used for a completely unjustifiable reason," the executive added.
FTI's appointment is understood to have been approved by John Griffith-Jones, the former KPMG partner who chairs the watchdog, and the FCA's other non-executive directors.
A source close to the regulator insisted that the use of an external adviser was necessary because some members of the FCA's press office were involved in the probe and therefore prevented from discussing its progress with the media.
"The board needs independent advice on this and it won't even start using FTI until the final report is in," the source said.
Clifford Chance, which is expected to complete its work during the summer, will report back to Mr Griffith-Jones, with George Osborne, the Chancellor, taking a close interest in the outcome.
Andrew Tyrie, chairman of the Treasury Select Committee has called for a wide-ranging inquiry into how the FCA discloses market-sensitive information.
"It is crucial - now that the FCA's non-executive directors have commissioned this inquiry - that neither they nor the board play any further role until Mr Davis has completed his report," he said last month.
The FCA was in the headlines again on Friday after fining Barclays £26m for breaching its rules in relation to the fixing of the gold price.