By Mark Kleinman, City Editor
The City watchdog's top executives could have their bonuses withheld or reduced for a second consecutive year following a coruscating report on its handling of an inquiry into the insurance industry.
Sky News has learnt that the Financial Conduct Authority's (FCA) board will review later this year whether the £3.8m cost of an independent probe into the regulator should be partly absorbed by variable pay awards.
The FCA said on Wednesday that the £3.8m, which included more than £1m for legal representation for senior officials, would be "absorbed" by the current year's budget, but did not specify exactly how this would happen.
The latest development came after the watchdog confirmed that four executives criticised in the report had given up their bonuses for 2013-14, with the other five members of the FCA's executive committee seeing their awards cut by 25%.
On a sobering day for the City regulator, Simon Davis, a lawyer, published his report on the FCA's briefing of a review it intended to carry out of around 30m life insurance policies.
The 226-page document painted a picture of poor communication and inadequate systems, for which John Griffith-Jones, the FCA chairman, issued an abject apology.
Clive Adamson, the director of supervision, and communications director Zitah McMillan, resigned as part of a restructuring announced earlier this week, but no FCA officials have left as a direct consequence of the botched briefing in March.
As Sky News revealed last week, Mr Davis made a series of recommendations relating to the disclosure of price-sensitive information, and criticised Martin Wheatley, the FCA chief executive.
Mr Wheatley is eligible for an annual bonus of up to £115,000 - or one-quarter of his basic salary - but insurance company executives said on Wednesday that it was "unthinkable" that he would be considered for a bonus this year.
"It is extraordinary that an organisation which says in its public pronouncements that it will live by the sword is not willing to die by the sword," said a board director of a FTSE-100 insurance company.
A review which was to appear in the FCA's annual business plan was briefed in advance to The Daily Telegraph, but sparked panicked selling by investors in insurance companies such as Aviva and Phoenix.
The regulator then failed to issue a statement clarifying the terms of its review for more than six hours after the market opened.
George Osborne, the Chancellor, said he was confident that the FCA would learn the lessons of Mr Davis's report.
Sky News was also the recipient of an advance briefing of a separate FCA review into the resilience of banks' IT systems in March.
The FCA declined to comment further.
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