Chancellor George Osborne said he was “profoundly concerned” by the City watchdog’s bungled announcement of its insurance industry probe and ordered a “thorough” inquiry into the fiasco.
In a letter to Financial Conduct Authority (FCA) chairman John Griffith-Jones, Mr Osborne said the regulator had been damaged by last week’s botched handling of information about its inquiry into 30 million financial policies sold between the 1970s and the turn of the millennium, which sent shares in insurance firms tumbling.
FCA chief executive Martin Wheatley insisted in an interview with BBC Radio 4’s Today programme that he has no plans to quit, despite admitting yesterday the affair was not the regulator’s “finest hour”.
But Mr Osborne demanded answers over why the inquiry was first disclosed in a newspaper interview and why it took six hours after the stock market opened for the FCA to make clear that the scope of the investigation was narrower than initially reported, and was not likely to involve axing exit penalties on old contracts.
Insurance firms saw share price falls of more than 20% on Friday before the FCA issued its clarifying statement, having already been hard hit by pensions reforms announced in the Budget.
Stocks in the sector have since staged a fight-back on the London market.
Mr Osborne wrote: “I am profoundly concerned by the events of last Thursday and Friday in which a pre-briefing of information about a forthcoming FCA review appears to have caused considerable disruption in the trading of insurance shares.
“These events go to the heart of the FCA’s responsibility for the integrity and good order of UK financial markets, and have been damaging both to the FCA as an institution and to the UK’s reputation for regulatory stability and competence.”
The FCA must “do everything possible to make good that damage”, he added.
The Treasury Select Committee will hold a hearing with the independent reviewer once they are appointed to lead the FCA review.
Mr Tyrie said the “reputation of the FCA is at stake”, adding the committee wanted assurances the review would get “to the bottom of what has happened”.
“The Treasury Committee will also want assurances that this work will be conducted wholly independently, of the FCA, the industry or anyone else.
The reviewer’s report should be published in full,” he said.