Oral evidence: Press briefing of information in the Financial Conduct Authority’s 2014/15 Business Plan, HC 881Tuesday 16 December 2014

Oral evidence, 16 December 2014.

Witness

Zitah McMillan, Director of Communications and International, Financial Conduct Authority, gave evidence.

Chair

Thank you very much for coming to give evidence to us this morning, Ms McMillan. I would like to begin by asking you how you got the job. How did you come into this job and what conversations did you have about what your specific role would be? What conversations did you have with Martin Wheatley?

Zitah McMillan

Thank you, Mr Chairman. I was approached by a headhunter. At the time I was Acting Director of Communications at the Department for Work and Pensions and had been in Government for nearly three years. I was approached by a headhunter, who I already knew of, and was asked if I had ever considered working for the FSA. I said, “No”, and then I spent a little bit more time talking to the headhunter. It was not an immediately attractive role to me. I was enjoying working in Government. I thought the work of the Department for Work and Pensions particularly fit what I wanted to achieve in terms of its social responsibility and its public impact, so it was not an immediately persuasive role for me. I spent more time then thinking about it and particularly went and read the June 2011 approach document and started to understand the change that was required in financial services. As you would expect from a communications professional, I then spent a lot of time analysing what had been said about the FSA and thought, “This will be an incredibly difficult task to launch the FCA out of the embers of the FSA”, and that appealed on a professional, very challenging basis.

Chair

It is a challenge.

Zitah McMillan

Yes. Once I had reconciled myself to being interested, I then went forward through the recruitment process.

Chair

After your appointment, did you have a discussion about the use of the media as a tool of regulation?

Zitah McMillan

We had that discussion during the interview process. I was interviewed by Sir Sants and Ms Titcomb initially and then by Mr Wheatley and Ms Cole together and then by Lord Turner. It was a fairly rigorous appointment process and one that you had to be incredibly well prepared for. At all parts in those discussions there were conversations about what the purpose of communications is and how you can use communications. I spent some time working with the Health and Safety Executive, so I was familiar with the now-disbanded body of the interdepartmental Liaison Group on Risk Assurance, which had done some fantastic work around risk and how communications played its part in risk mitigation. I had already worked myself to a place where I believed genuinely, as part of a Government communications team, that communications was part of a tool of policymakers more generally and, in particular, it can be part of a regulatory toolkit.

Chair

Do you agree with the FCA Practitioner Panel that there was an “inherent danger in the FCA’s desire to court headlines to raise the profile of its work” and that, therefore, the events of 28 March were an “unavoidable consequence of the direction of travel” of the media policy of the FCA? I think elsewhere it is described as an accident waiting to happen by one of the panels.

Zitah McMillan

You will forgive me for disagreeing with them, obviously, as you would expect me to, no doubt.

Chair

The purpose of these hearings is to give people an opportunity to say what they think.

Zitah McMillan

Thank you, I appreciate that. I was very disappointed and surprised to read the April Practitioner Panel board report. I had been in front of the Practitioner Panel three times and I had shared a number of things with them, both in terms of communication strategy and the development of the FCA’s tone of voice work, and had not had that direct feedback from them at any point. I asked Mr Wheatley had he had that direct feedback from them and he said he had not either. It was a source of immense regret for me that they had not felt able, for whatever reason and I am sure you will ask them, to share that with me directly. I thought they would have done had they had such significant concerns. The point around the media and the communications strategy more generally—because, of course, the media is just one part of it, it is not the whole of it—to go back to the purpose of communications and why we need to do either through our own channels, the website, or regulation around our own channels through the media and stakeholders or eventually paid for, of which we do limited amounts, is that we are trying to put forward my understanding of the Government’s intention in creating the FCA, which was that the public and politicians alike need to understand and support the purpose of the organisation from the outset. That, as a business objective, allows me as the communications director to write you a communications objective from there. Everything followed from the intent set out and that was the basis on which I wrote the communications strategy.

Chair

Did you think it was your strategy and not Martin Wheatley’s?

Zitah McMillan

He owns the strategy in a sense because he is the chief executive. I wrote the strategy. I wrote, as all communications professionals do, three versions of a strategy initially, because to have two is a dilemma when you are sharing it with your boss. Three is the way to go.

Chair

You offer some options?

Zitah McMillan

Yes, you should always have viewpoints on which way you may go. The one that we selected, which was the one I had recommended, was to route everything back to, as Mr Adamson said earlier—

Chair

This was in 2011?

Zitah McMillan

Yes. 2012, sorry, not 2011.

Chair

2012. I think we might ask for that document.

Zitah McMillan

I am sure you are welcome to have it.

Chair

I think it is important that I ask this question. Have you just decided to leave or is your departure very directly related to what you saw coming in the Davis report, which presumably you saw the critical parts of prior to publication, or was this a coincidence?

Zitah McMillan

I said when I took the role that I saw it as a three-year post. In very early conversations with Mr Wheatley, which is a slightly odd conversation to have but the FCA is incredible at having those honest discussions around career progression—

Chair

We would just like some frankness here.

Zitah McMillan

I will give you that.

Chair

Would you still be there if it had not been for the Davis report?

Zitah McMillan

No.

Chair

You would have gone anyway?

Zitah McMillan

I would have gone anyway because, as Mr Adamson said, the iteration of the strategy, while I support some of the philosophical parts of it, I disagreed with elements of it that were personal to me and they would—

Chair

What were those?

Zitah McMillan

The removal of communications from the executive committee I fundamentally think is the wrong thing to do.

Chair

In other words, what you see as demoting the role of communications in the organisational structure. Is it that?

Zitah McMillan

It is that but it is also you cannot differentiate between the substance of the work and how you might engage the intended recipient with the work. I think it is a mistake to do that. If you leave how you intend to engage with, say, small businesses and consumer credit right to the very end of the process, you will probably not get it right.

Chair

You are saying that the new strategy is the accident waiting to happen, not the old one?

Zitah McMillan

I would not use those words, Mr Chairman.

Chair

Well, you have just said it is very difficult to get right. Therefore, it is presumably quite easy to get wrong.

Zitah McMillan

I think it is very easy to get engagement with regulated firms wrong. I think you can assume they have a degree of interest and awareness of the regulator’s work that they do not have. Consumer credit firms in particular in the last year we have learnt an enormous amount about. We have done a huge amount of communications with those firms to get them ready for regulation and they are not as ready as we would like them to be. We see that as they come through for authorisation, so communications should not be separated.

Chair

Why do you need to use the press rather than an email to the chief executives of these firms?

Zitah McMillan

We do both. I have more people—

Chair

The argument put forward for using the media has been, “Well, we need to communicate with a very large number of firms and we cannot maintain a relationship with all of them, many of them very small”. I am just posing the question in the modern age: why can you not rely on one of the tools you are already using to communicate with them? I would have thought if you are a relatively small firm sitting somewhere in, let us say, Chichester or a somewhat larger firm in Edinburgh—I am not going to go through all 13 on behalf of my colleagues—you might notice an email winging in from the chief executive of the FCA. In fact, it would probably rise to the top of your in-tray immediately, wouldn’t it? Why do you need to talk through the press at all with respect to basic communications?

Zitah McMillan

I go back to what we believe the intent was in the creation of the FCA, that we need both the support of the public and parliamentarians alike, and regulated firms need to understand their responsibilities. Part of the year 2 communication strategy for me was how we enable regulated firms to understand that. If we purely wrote directly to firms, which is one tool we use and we have over 28,000 firms who are signed up for our monthly newsletter, for example, then there is a risk that this Committee potentially might say we were not being open and transparent about our activities. Using the media as a way of communicating as part of that toolkit is a way of enabling both the public and others to hold us to account.

Mark Garnier

Can I carry on this theme? You came from DWP and you said, and it has been repeated once more but I will say it again, that you see communications as just one more part of the regulatory toolkit. What wisdom did you bring from DWP to the FCA that made you come to that conclusion?

Zitah McMillan

I spent a large amount of time working with the Jobcentre Plus network and looking at how to get jobseekers back into work. Policymakers have a framework, forgive me for a little bit of policy jargon, but the intervention framework that policymakers use, and communications is one of the interventions. You assess how you might best create the change in behaviour that you desire through the implementation of that policy and what the best route to do it is. Is it via sanctions on jobseekers for failing to turn up for interviews? Is it by communicating to them that if they do not this is what will happen? I spent a lot of time with policy colleagues in Government and with operational staff in the Jobcentre Plus network, who mostly know a lot of this stuff instinctively rather than with lots of policymaker jargon wrapped around it. I had a very strong belief that communications used appropriately and in a targeted way with insight based on what will make that change happen can be a very powerful way and often cheaper than a radical policy change.

Mark Garnier

I think that probably sounds very sensible in DWP, but did you in the DWP ever have any instance where a badly-handled media communication strategy could cause some sort of crisis like this? Was there any example that you could think of where an error of inattention or an error of execution had resulted in a big crisis?

Zitah McMillan

Not in the same way. We had multiple issues that did not play out in the way the media people would like them to. The change to employment support allowance would be one that stands out in my mind in how the various stakeholder groups reacted to the policy change. From a communications perspective, you could see that coming from quite a far distance. I do not think we got it right, so I spent a little time reflecting on that. It is not the same in terms of market sensitivity and how you can move a market.

Mark Garnier

This is the point I am trying to get to. I am a huge advocate of bringing outside wisdom into any organisation in order to bring best practice from other areas, but clearly whenever anybody goes into one institution they are not that familiar with there are going to be potential conflicts and potential problems. While I am very sympathetic with what you have been describing in terms of the work of the DWP, clearly one of the most important things that could be a problem in the FCA is that what did happen could have happened. What I am wondering is did people like Martin Wheatley or anybody else sit down with you and go through all the potential risks that any media strategy might have in terms of causing problems with markets.

Zitah McMillan

I would not expect the chief executive to train me on that.

Mark Garnier

Or, indeed, anybody else.

Zitah McMillan

I had a very intensive two hours with the head of markets, one of the heads of department, who felt responsible for “Market Watch 21 and 37”, which incidentally I had read as part of my preparation for taking on the role.

Mark Garnier

Did you understand it?

Zitah McMillan

I did, yes, and I had incredible help, probably more helpful than any formal training you can receive, from someone who is both a practitioner of and a supervisor of the markets and how they work.

Mark Garnier

An intensive two hours?

Zitah McMillan

When I first joined.

Mark Garnier

What was the ongoing supervision that you had with the media strategy in terms of making sure that you did not infringe any market abuse rules?

Zitah McMillan

There you rely on colleagues that you work with. I would not presume to be or assume to be an expert in how one piece of work may affect a market, and I think it would be a dangerous place to go if I thought I had that level of technical awareness and detail of the markets themselves. You work very closely, as Mr Adamson said, with colleagues in the relevant business area. There should always be a balance between what you think and what your colleagues may think in other parts of the organisation. The checks and balances in the system ought to be sufficient. Sadly, on this occasion they absolutely were not.

Mark Garnier

Let us say you are bringing out something that could potentially be market sensitive. You would check it with the markets authority? You would ask around and see if they agreed with it or was there a formal process that it went through?

Zitah McMillan

Yes, if it was known to be market sensitive—

Mark Garnier

The key point is how you know it is market sensitive. Who checks the number one check: is it something that is potentially market sensitive?

Zitah McMillan

Is owned by the business owner. The people deciding whether something is or is not market sensitive are the people who are responsible for the work.

Mark Garnier

Do they go through every press release and every—

Zitah McMillan

Yes, all press releases are signed off. They go through an iterative procedure, if you can call it that, where one of my team writes a press notice. At a working level it comes back and forth, back and forth, as you make sure you get the points of detail right, and then it will go up through the chain of command. It has to be approved by the director responsible and either I will see and approve it as well or one of my communications heads of department will see and approve it.

Mark Garnier

What is interesting in the discussion with Clive Adamson a bit earlier—I do not know if you saw that—is we were talking about how the Practitioner Panel was quite damning, and we have already heard a little bit from you this morning on this. Coming from that is that clearly there are two sets of interested parties in terms of the communication strategy of the FCA, one of which is the Practitioner Panel, so those people who are the regulated, and the consumer panel, so those people who are the protected, if you like. You have been in the media trade long enough to know that one thing that tends to sell newspapers quicker than anything else is a scare to the community story. What strikes me from what I have heard this morning is that this started off as something that is quite a useful communication to go out to the practitioners, the insurance companies and that kind of stuff, to show them this stuff is coming on, but the media turned it into a scare to the punter story, and as a result of this it transformed from being one type of useful practitioner story to a market sensitive scare story. That seems to be something that has been completely overlooked, the dynamics between the two types of audiences and the dynamics between how the media can interpret something in a completely different way from that which was intended. Discuss.

Zitah McMillan

If I can use a different example, one that both Clive and I worked on together, the interest-only mortgages and the approach the FCA took to quite a difficult challenge facing people who have interest-only mortgages when they come to the end of their terms. The year 2020 was the point at which we realised many of these people would not be able to repay and a classic approach to that would be to go out and say, “There is an issue. The industry needs to solve it. This is a big problem”. An easy approach, if you like, but for me not the right approach at all. I saw this as very much an opportunity that industry can, as industry wants to do, help rebuild confidence in their activities. This is something Clive and I both very strongly agree on. The approach we took on that was very much industry should lead this supported by some research that we had produced to show that there was a problem in the future and that we should be supportive of industry’s approach to that. It still got reported as a crisis waiting to happen. No matter how balanced we are, there is always a risk that it can still be reported in a certain way, but I think we are very cognisant of those risks.

Mark Garnier

Is it not ultimately counterproductive?

Zitah McMillan

To?

Mark Garnier

To the message you are trying to get out. The message you were trying to get out on this particular occasion was that you recognised there was something that needed to be looked at. You were looking at it. You were approaching it. It was all being done very well, but completely the opposite came out of that particular story. Suddenly people were in absolute panic about their interest-only mortgages and they are unable to pay them off.

Zitah McMillan

People did not necessarily respond in panic and because we had worked—

Mark Garnier

Yes. I use hyperbole in order to seek tomorrow’s headlines.

Zitah McMillan

Okay. I will try to avoid that. The way in which we had worked with the Council of Mortgage Lenders and the Building Societies Association and with the firms themselves meant that we were able to mitigate that with clear communications. All of the firms had agreed they would write to their customers directly, set out the scale of what they faced in 2020 and ask if they needed help with their repayment plans. While there was a little moment where I felt it had been reported in a slightly more extravagant way than I would have wanted, because we had worked very closely with industry and the representative bodies we were able to make sure that that was not how it continued to run and that consumers were not adversely affected by it, which was my main concern.

Mark Garnier

Getting back to this specific case, there was a decision to engage a specific journalist to write a story on what was coming and the thing about the insurance companies. With the benefit of hindsight, would it not have been a better idea to have a very carefully crafted press release to put out to all newspapers and have it on your website so as effectively to manage it? If people do come up with hyperbole and all the rest of it, you can turn around and say, “This is what we are talking about. Let us be absolutely clear. This is the message we want to get out”, rather than rely on a journalist, who may be a very trusted journalist but nonetheless will try to sell newspapers.

Zitah McMillan

One of the things I reflected for a long time on in my numerous sleepless nights since the events of 28 March, hindsight is a fantastic thing. Yes, I would agree wholeheartedly that there are ways that would have been far better. The context at the time with regard to the business plan and the discussion that we had had back in October 2013 when we first took the skeleton of the business plan to the executive committee and the communications strategy for year one at the same time was that the business plan was inevitably overlooked by almost everyone, which is quite sad. That is one of the things I was charged with saying, “Well, that cannot happen”, and that firms spent more time thinking about the risk outlook, but still not enough time thinking about the risk outlook. With all the noise that would be in the system around consumer credit with the closure of the OFT, how could we make sure that that did not happen again? I think it was a well-intentioned approach, but, yes, absolutely with the benefit of hindsight, that was not the right way to do it.

Mark Garnier

Since this crisis and before the Davis report of what came out, have you been satisfied that any changes that have been put in by the FCA are the right changes? Have they done enough? Could they do more?

Zitah McMillan

There are certainly far tighter controls. There are multiple changes, which I can touch on very briefly if that is helpful and Mr Adamson alluded to. We have a very detailed sign-off process that partly goes through myself and the accountable director in the business area. We have a 48-hour prepublication pause so that I can flag any issues to Mr Wheatley as necessary. We give him a monthly view of those that we think he should take more of a personal interest in and that he then does take a personal interest in. We factor that into the timings. I have a system of communications accountable executives whose strategies and plans all need to be approved by both the business and either myself or my nominated deputy. To say we have tightened controls would be an understatement, but to say that I would ever be complacent that there is a risk somewhere in the system, I would never be that complacent.

Alok Sharma

Ms McMillan, if I can summarise you, I think what you said to the Chairman is that you were not pushed; you have decided to walk.

Zitah McMillan

Yes.

Alok Sharma

When did you decide and when did you communicate that internally and who to within the FCA?

Zitah McMillan

I met with Mr Wheatley on 22 October and he told me of his intention with regard to the structure and what that would mean for my role. I said very clearly at that time it would not be a role that I would continue in and that I would not stay with the FCA. I did not formally hand him a piece of paper at that time, but I clearly communicated to him on 22 October.

Alok Sharma

You said in an earlier answer to Mr Garnier that you would not expect the CEO to train you on communications or media strategy. Do you think it was your role to give that sort of advice to the executive committee?

Zitah McMillan

Yes.

Alok Sharma

Why is it, then, when Mr Adamson gave evidence—and forgive me if I have this wrong—but I think he said the ExCo did not discuss that communications could move markets.

Zitah McMillan

He answered the very specific question about: did we have a risk-based discussion about where any material we put into the public domain could move markets? We had not had that specific discussion.

Alok Sharma

Forgive me, you have a lot of experience. It says in your CV that you have brought to the FCA a robust strategic approach to planning and delivery in communications. You have all sorts of international experience working for big companies. Is it a bit odd that you were not raising this issue with the ExCo, the issue that information can move markets?

Zitah McMillan

I do not think it is odd that I did not raise it. My assumption is that everybody would think that an organisation who is the regulator could move markets. Part of the intention of the regulator is to change the way industry works, so you are always very conscious that you are effecting change. It is not a conversation we had, Mr Adamson is absolutely right, or not when I was at ExCo. We did not have that conversation and I would imagine that a future ExCo certainly will.

Alok Sharma

That was a failing then?

Zitah McMillan

With hindsight, yes, absolutely.

Alok Sharma

In response to Mr Garnier, you talked about the process of communication strategy before this event and you have talked about it subsequently. It was not clear to me what specifically has changed. Initially, you talked about all the sign-offs making their way up and all the rest of it. I think you basically said the same thing in terms of the new strategy. Can you tell us specifically what has changed?

Zitah McMillan

Press notices would have always been signed off by the named member of the executive who was quoted in a press notice. To that extent it has not changed, but what has changed is that that process is very much more formal now insofar as you have a set timeline by which all work must be approved. Mr Adamson would reasonably expect to receive any material with a minimum of three days before I would expect to see a final version of it. We are very much more clear on the timeline you have to have, the named individuals that must approve it, and the speed bump that we inserted at the end of the process, which for me of all of it is possibly the most important, that allows us to pause.

Alok Sharma

Mr Adamson said, “There were multiple breakdowns of control”, including, I expect, in communications. Do you think the communications section is being unfairly pilloried, unfairly treated, given that there were multiple breakdowns in controls?

Zitah McMillan

No. Again, as one of my 3 am reflections when I have been trying to work out how this could have happened on my watch, I am accountable for my division. It should not have happened. I am incredibly sorry that it did, but I do not think it is an inappropriate amount of reprobation that is being heaped on our heads. I think it is absolutely right. This should not have happened and I am sad it did.

Alok Sharma

Since March, have you had any other prebriefings with the press on any other issues?

Zitah McMillan

We have not, but I am aware that one took place today at the Bank of England. No, we have not prebriefed the media specifically. We have done detailed technical briefings. For example, when the FX fine was put out, we sat down with the media immediately after the fine was published and gave them a technical briefing. I think that is absolutely the right thing to do because you do not want things to be misunderstood. You want to give people the opportunity to ask those sorts of questions where they can fairly report it.

Alok Sharma

Final question. You said that the removal of the communications from ExCo is basically wrong and that is the reason that you are leaving. Are you telling us that the FCA is in a worse place now as a result of this change of strategy than it was previous to the change of strategy?

Zitah McMillan

I hope not. The strategy has not even turned into an operational—

Alok Sharma

No, but you have just said the reason you are leaving is because of the removal of communications from the executive committee.

Zitah McMillan

That is my very firm personal view, which I expressed to Mr Wheatley.

Alok Sharma

Absolutely. Just to press that point, does that mean that, whenever this strategy comes in place, it will be an inferior strategy to the one that was already in place prior to this incident?

Zitah McMillan

I think it introduces an unnecessary element of a disassociation risk, which means that the systems and controls put in place need to be relooked at. Whatever I put in place post 28 March I would anticipate needs to be reconsidered on the basis of the new strategy. I do not think you could sit back and assume that what I have created is fit for purpose now to match the new strategy. Had I stayed, I would certainly have relooked at them with the new strategy in mind.

Chair

Well, that is a sobering thought that we will take on board.

Stewart Hosie

You told Simon Davis that you were unaware the FCA was planning to prebrief journalists on the FCA business plan, but if we have understood this correctly, you received a number of emails from junior staff in the communications area about plans to trail part of the business plan in the press. What did you think your staff meant by “trail” if it was not brief or prebrief?

Zitah McMillan

I am grateful for an opportunity to respond to that. In a five and a half hour interview you answer some very difficult and detailed questions. This is one of the questions that, in my representations, I had hoped to have changed. I was fully aware that we were trailing or prebriefing, and people use them differently. The detailed question I had been asked was whether I was aware of the detailed briefing that was being given at that time to this particular journalist, and I had not seen that plan. I answered very honestly, no, I was not aware of the detail of that briefing because I had not seen it. I feel that it was unfortunately worded. I do not believe it reflects exactly what I had said.

Stewart Hosie

You were aware they were going to prebrief, but you were not aware of the detail of the prebriefing?

Zitah McMillan

Yes. If I may, there is another inconsistency that is one of these minor frustrations that I am sure colleagues feel as well, about the difference of opinion between my team and myself as to what I knew. One of the issues I have had since, where I thought, “How could this have happened?”, what I learnt through the process of reading the report but not before, because we obviously went into lockdown immediately the independent investigation was announced, was that the detailed plan had been sent to my office but I had not been given it. Of all the things to find myself irritated and surprised by, that was quite high on my list as well. The fact is I could have known more and I was not given the plan.

Stewart Hosie

Let us move on, because that is helpful clarification from your point of view. The then head of internal and external relations also said she was not involved in the strategy in relation to publicising the business plan. Notwithstanding you were sent a copy of this but you did not see it, does that mean that the most senior individual involved in the prebriefing plan was somebody called a media manager?

Zitah McMillan

My understanding from having spoken post the report to my officers is that the detailed plan came from the internal and external head of department. I was surprised that she did not feel she had had oversight of it. That was my expectation. Again, that is one of those systems and controls breakdowns that is frustrating because, while I was busy looking left at consumer credit, I had anticipated my deputy would be looking right at this and that clearly was not the case.

Stewart Hosie

You got sent a plan but you did not see it. It was sent by the head of internal and external relations, but she denies having oversight of it. What are we to make of this?

Zitah McMillan

That that is a fundamental breakdown in a control you would expect to see in a division like mine.

Stewart Hosie

It would be wrong to characterise it by saying that too much responsibility was left in the hands of relatively junior staff in the sense of the media manager when, as you say, the head of internal and external relations was very well aware of this. Is that correct?

Zitah McMillan

I would not want to put words into the media manager’s mouth, but I think that individual would feel that opportunities were there for both his immediate line manager and for myself, as her line manager, to be fully aware of the detail. I think it would be unfair to him to think he had not provided that opportunity.

Stewart Hosie

This goes back to something the Chairman said earlier about previous correspondence and hearings we have had when no one appears to be at fault or responsible, which is always a bit unfortunate. I am going to change tack. The media manager has said that prebriefings were considered a normal part of his team’s media toolkit. I take it you are aware of that and that was standard practice.

Zitah McMillan

It was not standard insofar as it happened all the time, but it was certainly something that could be done and I think in the report Mr Davis gives two examples that we provided.

Stewart Hosie

Let me ask that in a different way. It should, therefore, have been clear to you, notwithstanding what you had been sent or seen or not seen, that there was a very real possibility that prebriefing was a tool in the standard toolkit that could have been used in this circumstance?

Zitah McMillan

Yes, but it would never be used in relation to market-sensitive information.

Stewart Hosie

But it was.

Zitah McMillan

But this information had not been determined to be market sensitive at that point.

Stewart Hosie

Yes, but it is and it moved the market.

Zitah McMillan

It did, but it had not been categorised. The way in which you communicate market-sensitive information is very clearly written out in both our information classification and regular processes. You would not, under any circumstances, do any form of prebriefing in relation to market-sensitive information.

Stewart Hosie

Forgive me if I have misunderstood this, but you said earlier that the determinant and ownership of market sensitivity is the business area manager.

Zitah McMillan

Yes.

Stewart Hosie

They presumably signed off the content of the prebriefing material and the press release, or is there a different rule for prebriefings as opposed to formal press releases?

Zitah McMillan

No. The content and substance, as Mr Davis said in his report, was signed off by the business.

Stewart Hosie

Where did the breakdown occur in terms of the identification of market sensitivity as opposed to the process of releasing it?

Zitah McMillan

I think Mr Adamson referred, in his evidence, that at the time it was not considered to be market sensitive. Again, this morning he has covered in some detail how you go about deciding it and also whether we would have had an assumption that a thematic review of this nature could be market sensitive.

Stewart Hosie

I have one final question on this, because you will appreciate this is a confused story. You were a director. There was a head of internal and external. There were then managers and media associates. With this box of tools to be deployed, which had been deployed, which you accept may well have been deployed in the circumstance, would you say that you were completely in control of what were the standard practices of your staff?

Zitah McMillan

I think it would be very hard for me to say that, given the events of 28 March, so no. One of the things that is difficult about the process we have been through is that you cannot go away and find out for yourself the root cause of what has gone wrong. I spent six months effectively in the dark about how this could have happened, because we could not go away and do any independent research for ourselves as to how it could have happened. All you can do in that situation, which is what I did, is fill multiple night-time notepads with all of my processes and systems: where were the known risks; was I being fooled by randomness, as the Taleb book told us back in 2000; how could I have let this happen; and where could it happen again? The frustration of not knowing how it happened caused me to review absolutely everything within my division with a degree of scrutiny that was probably uncomfortable for most of the people who worked for me.

Mr Love

Can I explore the relationship between the staff in your department and other staff in the FCA? What was your vision of that relationship and how did you communicate that to your staff?

Zitah McMillan

When I joined I very clearly said, having spoken to a number of colleagues, that my division was too hard to do business with. There were too many entry points into the division. It was not an easy process to engage with and that we were there fundamentally to serve the rest of the organisation. Communications as part of your toolkit means that you are there purely to serve the organisation and not to serve your own agenda, and I felt that there was a misunderstanding in some of my division about its purpose. I restructured the division. I made it as I thought fit for the FCA rather than a slightly more haphazard grouping that had come about more organically. I said very clearly, “You ought to be part of the discussions, if there is a specific project programme or whatever the piece of regulatory activity is, so you can contribute to that discussion. Don’t come to it at the very end and assume you understand it, because you won’t and you will probably give poorer advice because of it”. I wanted my division to be very much part and parcel and to be supportive of their colleagues as they developed their work.

Mr Love

Could I interpret that as there was originally a subservient relationship to other departments and you wanted to make it an equal relationship and involve your staff in decisions taken over press briefings and press releases?

Zitah McMillan

I do not think there would ever have been a subservient relationship and I did not go out to achieve equality. I had not perceived that there was any form of subservience in the way the FSA had operated, but I felt that my division was not contributing well enough to colleagues in their thinking and they were not offering specific communications advice about how best to reach the intended recipients. I felt we could do better.

Mr Love

How do you respond to the criticisms, implicit and explicit, in the Davis report, for example, “A lot of pressure from Communications to prebrief the story”, of a robust, some would say aggressive, relationship from your departmental staff? How do you respond to that?

Zitah McMillan

I was deeply disappointed when I read that. Had you asked me even during the process of the inquiry being carried out, I would not have said that that was the relationship my teams had with their colleagues. You have huge amounts of debate constantly about what is going to happen. There are inevitably five different positions and then you bring in the lawyers and you end up with 12 different ways of doing things. There is, inevitably and well done, a huge amount of discussion that goes on and I think that is for the good. I thought it was absolutely dreadful to read that a team within supervision felt that my team had been aggressive.

Mr Love

You mentioned in reply to an earlier question about an iterative process of going back and forward from communications to whichever relevant department of the FCA was concerned. Did that not open the possibility that your staff, who had a very single-minded pro-consumer agenda according to the Davis report, would express that in the iterative process and would appear to be overbearing to other departments?

Zitah McMillan

I do not think my division has an overtly pro-consumer agenda. That is consumer not just retail consumer, because defined in the Act “consumer” is quite vague. In my press office I have six press officers, one of whom came from markets, one of whom has worked with enforcement and markets for a very long time, two are more generalist and two have more retail consumer experience. There is certainly not an aggressive, pro-retail consumer agenda within my division.

Mr Love

Did you ever receive any complaints from other departments, from staff or the heads of departments, about the relationship between your staff and their members of staff in those departments?

Zitah McMillan

No. I have had conversations with colleagues who have said that they have not been getting enough of the individual I have assigned to them. I can think of a recent example with one of Clive’s deputies who was frustrated that the person I had assigned on one of her key pieces of work had not had enough time to dedicate to it. You have those sorts of conversations all the time and I think, in a division of my size trying to service an organisation of the FCA’s size, it is inevitable you will not be able to meet the needs of absolutely everyone. Another personal reflection and disappointment is that none of my colleagues in supervision, for whom I have an enormous of respect, picked up the phone to me or my deputy or the media manager and said, “We do not think this is right”, and I am deeply saddened by that.

Mr Love

How do you respond to an implicit criticism made in the report that the relationship between communications staff and other staff in the FCA resulted in the obscuring of the importance of accurate, factual communications from the regulator? Do you accept that criticism?

Zitah McMillan

That is one of the ones I find harder to accept, because the communications strategy for this year is called “Truth and Proof”. Every communication strategy has some form of title. Last year’s was “Proof of Concept”, where we were establishing the FCA. This year’s is called “Truth and Proof”, and it is very much predicated on we talk about both the outcomes we are intending to achieve by the work we are doing—and it is all, as Mr Adamson said, rooted in the substance rather than what we think the narrative should be—and then the proof points, the evidence of what we and the industry are doing. I see what we do is an enabler for the industry to improve. I find that particular criticism far more difficult.

Mr Love

But it is a widespread criticism from all of the different departments of the FCA that when they informed the communications department of the realities of the particular press release that was being considered, that was pushed aside in the effort to raise the profile of the FCA in the media.

Zitah McMillan

The profile of the FCA was particularly high anyway, so raising the profile is not a personal objective that I have nor is it an objective that I would set for my team. I cannot explain why the challenge was pushed aside. It is something I have thought long and hard about since having the opportunity to read the report and I will not reconcile myself to that, I have to say. That is one of the things I will take away as being both unwelcome and unexpected.

John Thurso

Do you accept the criticisms in the report that directly relate to you in paragraphs 19.21, 19.22 and 19.23?

Zitah McMillan

Yes.

John Thurso

Earlier on, in answer to my colleague Mr Hosie, I think—and correct me if I am wrong—you accepted that this whole affair represented a pretty fundamental lack of command and control.

Zitah McMillan

Within this specific instance, yes.

John Thurso

Do you think that what happened was a risk that should have been identified?

Zitah McMillan

In terms of?

John Thurso

In terms of the consequences. Should anybody within the FCA have been thinking about this as a risk and seeking to mitigate it?

Zitah McMillan

I think the origins of the work were precisely to mitigate the risk that the supervision team had seen, that this could be misinterpreted. With no sense of irony, that was the intent all along.

John Thurso

I will try to rephrase the question. In your role, what risks are you considered to own in the risk register?

Zitah McMillan

I have multiple risks. The way our risk register works is each division puts risks on for themselves and you are also noted as a mitigant for many risks across the organisation. Communications is noted as a mitigant for a significant number of risks, whether that is direct with firms or with consumers. I have a number of risks that I own, some of which are operational and some are more in practice and in principle.

John Thurso

If I have understood your answer correctly, in the risk register the communications department is seen as a department that is mitigating risks that have been identified elsewhere?

Zitah McMillan

As well as owning our own risks, yes.

John Thurso

The risk of price-sensitive information being unwittingly communicated in a manner that destabilises the market, was that a risk that had been identified?

Zitah McMillan

It has not precisely in the terms that you have said.

John Thurso

Had it been broadly identified?

Zitah McMillan

There is a broad identification, but it would not satisfy me to say yes 100% to your question. I do not think it is specific enough. One of the good things that happened—

John Thurso

If you can’t say yes, do you think no would be the better answer?

Zitah McMillan

No. I was trying to recall the exact wording of the risk. I think it is alluded to but not clearly enough.

John Thurso

It would be right to say that there was some vague reference to the possibility of a risk from communications. What would the mitigation to that be?

Zitah McMillan

I think it was more about misinformation rather than sensitive information and the mitigation to be for absolute clarity and to get your sign-off procedures right. Others could explain this better than I do, but a lot of risk mitigation is in the systems and controls you place on it.

John Thurso

The ownership of the risk rested with you and the mitigation of it would be in proper controls being in place?

Zitah McMillan

Yes.

John Thurso

What I want to ask then is about the relationship between individual and collective responsibility. You sat on the executive committee. How were these matters of potential risk discussed on the committee, how often and in what manner?

Zitah McMillan

We took very detailed risk packs from the chief risk officer on a frequent basis and on a quarterly basis we have a deep dive into the substance of the pack and also specific areas the chief risk officer had identified that he and his team had more concern about. They would be prior to the pack going to the risk committee or prior if they were being discussed at the board. There were many opportunities to talk about deep risks in certain sectors and also more generic risks.

John Thurso

For something that has turned out to be pretty monumental, which has resulted in the non-execs commissioning this report and a huge amount of negative publicity, everything that communications is there not to achieve being achieved, can you explain why this risk was not properly identified?

Zitah McMillan

Mr Adamson referred to this earlier. For the most part, reputational risk, and it reflects the way we work as an organisation, is rooted into the specific piece of work. That way there is an individual owner of the risk who has specific responsibility within their chain of command or within the organisation for enabling mitigation as well. I had spoken to the chief risk officer about a corporate-wide reputational risk to be put on the risk register, which is what we had had at DWP and I know many other government departments have this and it is usually owned by the communications director, so it was a surprise that we did not have one. One of the challenges with that is that you as the central owner do not hold all the levers to mitigate the risk. It worked slightly counter to the way our risk model works.

John Thurso

Is there anything in respect of the operation of the executive committee that you would like to see done differently that might have helped to either spot this in advance or deal with it faster after the event?

Zitah McMillan

I am not sure it is necessarily for the executive committee. Again, Mr Adamson referenced the governance within the organisation. There was a missed moment where the detail of the plan for this particular incident should have gone to the right committee, which would be the divisional supervision risk committee to my mind, in this instance, so that it could be challenged by a group of its peers. It did not happen and I do not believe that is appropriate. If you are producing work, and communications is purely you producing work to enable others to do their job, it should go through the appropriate governance, and it did not. I do not think the ExCo needs to do that the whole time. If it did, it probably would not be doing the rest of its day job very well, and I think the tiers of governance within the organisation need to be given permission to operate in that way.

John Thurso

What do you think Simon Davis meant by the collective responsibility, that there was a failure of collective responsibility with regard to the executive committee?

Zitah McMillan

I think the executive committee has to take responsibility and accountability for it because we are the executive and, therefore, ultimately it rests with us.

John Thurso

Those of us who sat on the Banking Commission listened to a great number of people saying, “Yes, we all take collective responsibility”, and we all had a feeling they did not. They just said, “We are all in it together, so we will accept responsibility”. Part of our work was entirely about saying that is not acceptable and if people take collective responsibility it is because they collectively have individual responsibility, not that they do not collectively have individual responsibility. What I am asking you is: what does collective responsibility of the executive committee mean? Does it mean that individuals collectively have responsibility together or is it just one of those nice governance phrases that does not meant a lot?

Zitah McMillan

I think going forward the ExCo will need to determine which side of that argument they are on, and Mr Adamson gave his view on that. Personally, my role in a regulated firm within the senior persons regime, when that is implemented, will be noted as a senior person with individual responsibilities and accountabilities and that is absolutely right. I am more on the side of the individual is contributing to the collective, because I do not think it would be particularly fair and appropriate to assume that every single member, say the general counsel, should have absolute in-depth knowledge of what the communications team is doing. That may stifle his ability to do his job. Individuals must be responsible.

Rushanara Ali

Reflecting on some of the things you have been saying about the breakdown of communication within your division as well as across, do you feel there is something fundamentally dysfunctional about the organisation that has inhibited proper internal communication, which has then contributed to this external problem that is the subject of the Davis review? Do you feel that that is at the core of what is going on? The impression I get from what you have said and previous questions is that there is something quite dysfunctional going on in the organisation, particularly in terms of the section that you were responsible for. You mentioned you had not seen one of the reports. Could you reflect on what could be done going forward? Sometimes these external reviews take place but if there is not an acknowledgement of what is going on internally among staff in terms of training, support and proper management of accountability within teams, things can continue to go wrong.

Zitah McMillan

I do not think this individual incident shows a completely dysfunctional division. There are many things that my division is responsible for and this sort of incident had not occurred. We are scrutinised in our work by responsible members of the business but also our strategy and communications to the asset management industry was discussed at length in one of the executive committees. I do not think it shows a fundamental breakdown in general terms, so it is not systemic as the Chairman said earlier. I do think there are specific points that you absolutely have to learn from and should never happen again. You would accept that in the nine months since this incident has occurred we have not sat still for a moment. I certainly know I have not sat still for a moment trying to figure out where else should I improve the discipline, the structure and the control within my division.

Rushanara Ali

What about other sections? My point is about the relationship between your section and other sections of the organisation.

Zitah McMillan

One of the things that Mr Adamson did and sponsored within the supervision risk committee, which I think one of his directors chairs now rather than he, but he might correct me, is made sure that within the submissions that go to that committee there is a box within it that says “Communications”. It assesses the risk of communications activity and it ought to talk in some detail about the planned activity and what the pros and cons of that activity are. What this has allowed is to make that even more embedded rather than trying to create any further distance.

Steve Baker

Did you know that The Telegraph had a long-running campaign for action over rip-off charges, particularly on pensions and so on?

Zitah McMillan

All media describe themselves as having long-running campaigns on all sorts of things and you realise afterwards they did not. I was not conscious that they had an absolutely long-running campaign, but I know that The Telegraph, because of its demographic and readership, would have this as something it would be very interested in.

Steve Baker

What did you think the narrative was going to be? You mentioned in passing that you decide what you think the narrative should be. What did you think the narrative was going to be when The Telegraph was provided with a victory in its long-running campaign?

Zitah McMillan

Having read the briefing notes, which obviously I was only able to read as part of the Maxwellisation process for the report, it was very clear what we were trying to achieve. The slightly euphoric tone of The Telegraph article is not something that I would have anticipated, based on the briefing notes that we had written.

Steve Baker

Do you think that the FCA should expect such euphoric tones if similar announcements are made in future?

Zitah McMillan

I think it is right and proper that the media champion causes they think they are doing on behalf of their own constituents, their readers, and that is something we need to be very mindful of whenever we are deciding the course of action to take.

Mr Love

In his evidence to us, Mr Davis said that the FCA had some responsibility in The Telegraph article that appeared, based on the evidence he had accumulated. How do you respond to that criticism?

Zitah McMillan

I think it is a fair criticism. There were things that happened in the briefing that I think were wrong. Mr Adamson should rightly feel aggrieved that an off-the-record briefing that was not attributable was somehow switched to on record. That is not something I have ever come across before and if you had asked me nine months ago I would have said it absolutely could not have happened, so I was fooled by my own risk procedures there. I think it is a fair criticism.

Chair

Thank you very much for the clear and direct evidence you have given us. I am afraid it is now this afternoon. It has taken a bit longer than we had thought and hoped, but I think we have made some progress. Oral evidence: Press briefing of information in the Financial Conduct Authority’s 2014/15 Business Plan, HC 881 21