On Friday, the Financial Conduct Authority told The Daily Telegraph it is to launch an investigation into concerns that providers have ripped off millions of customers with policies from as far back as the 1970s.
After the announcement, several insurance firms suffered large drops in share prices, leading the FCA to release a further statement stating that the review would not look at sales practices or apply current standards to old policies, which resulted in a recovery of some losses to insurer's shares.
The Sunday Times then reported that insurers were planning to complain to the chancellor George Osborne about the FCA’s behaviour and were calling for the resignation of Martin Wheatley, chief executive of the FCA.
But in a statement released this morning the FCA said: “The FCA Board acknowledges the concerns of the market regarding today’s press coverage of the FCA’s proposed supervisory work on the fair treatment of long standing customers in life insurance.
“The FCA put out a statement of clarification this afternoon. The Board will conduct an investigation into the FCA’s handling of the issue involving an external law firm, and will share the outcome of this work in due course.”
The FCA told The Telegraph that at the heart of its investigation is an “unfairness” whereby some insurers use the returns from closed funds to pay bills from other parts of its business.
Following the announcement, shares in UK insurance provider Phoenix Group fell 18%, while UK holding company Chesnara, which purchased Direct Line's life insurance company in 2009, fell 11%. Aviva, Legal & General, and Prudential all suffered a maximum drop of 6%, while Standard Life fell 4%.
The FCA has since been criticised by Andrew Tyrie, the chairman of the Treasury, who said that releasing the information via a press interview was an “extraordinary blunder”.
The inquiry was officially announced today in The FCA's 2014/15 business plan, which was also used to announce a £14.3m increase to the FCA’s annual funding requirement.
The regulator’s budget will increase to £432.1m from £446.4m, which will be found through an increase in charging fees.
Wheatley said the increase in charging fees would fall on larger firms.
“We have worked hard to ensure that the small firms we regulate pay the least and once again we are able to keep the minimum fee at the same level,” he said. “The increases will be borne mainly by larger and more complex groups, which pose the most risk and are costliest to regulate.”
