The government should apologise to Equitable Life policyholders and compensate them for any money they lost as a result of its regulatory failure, the Parliamentary Ombudsman said today.
In her long-awaited report into the government’s regulation of the mutual, Ann Abraham said she found evidence of ‘serial regulatory failure’ for more than a decade.
She said the former Department of Trade and Industry (DTI) and the government Actuary’s Department (GAD) were ‘passive, reactive and complacent’ in their regulation of the society before July 1998.
She added that between July 1998 and December 2000, the regulators’ actions were ‘largely ineffective and often inappropriate’ despite them being aware of the society’s growing problems.
Overall, she identified 10 instances of maladministration by the DTI, GAD and the Financial Services Authority in the period leading up to December 2001.
She called for a compensation scheme to be established to assess the individual cases of current and former policyholders and to compensate them for money they had lost as a result of the problems at Equitable.
Ms Abraham said the scheme should be set up within six months of the government and Parliament agreeing to do so, and it should aim to complete its work within two years.
Today’s report was widely seen to be policyholders’ last chance to get compensation after previous reports were either ignored by the government or failed to find sufficient fault with the regulators.
It also comes after Equitable abandoned its £3.3bn legal action against its former auditor Ernst & Young and settled with its 15 former directors, whom it had been pursuing for £2.6bn.
But policyholders will have to wait until at least the autumn before they learn if the government will follow the ombudsman’s recommendations to compensate them.
A Treasury spokesman said: ‘The government recognises that the ombudsman’s report raises issues of concern for the parties involved.
‘The length and complexity of the report mean it would be inappropriate to comment before giving it our full and careful consideration. We expect to provide a full response to the House in the autumn.’
The report was welcomed by Equitable Life chairman Vanni Treves, who described the ombudsman’s conclusions as ‘inescapable’ and ‘damning’.
He said: ‘From a policyholder point of view we think this is as formidable a report as the Ombudsman could possibly have produced.
‘We could not really have asked for more. Her reasoning and recommendations are beyond argument.’
Chief executive Charles Thomson added: ‘We are delighted to see this. It has been a long, long, hard road.
‘It is iniquitous that people have had to wait eight years for a proper report into the regulation of the society.’
Among the catalogue of failures highlighted in the report, which is 2,800 pages long and took four years to complete, the Ombudsman said the regulators had not verified the financial position of Equitable, even though they were under a duty to do so.
She added that they also failed to identify the problems that led to the society having to close its doors to new business, and as a result opportunities were lost to address these problems earlier on.
The regulators also permitted misleading information, based on a misunderstanding of Equitable’s reported financial position, to be given to policyholders.
Financial Services Authority
Ms Abraham said even after Equitable closed to new business, the regulator, which was by now the Financial Services Authority, provided misleading information, saying the society had always been solvent for regulatory purposes and had met its other regulatory requirements, when neither was the case.
She said as a result of the regulatory failings, policyholders were not only exposed to financial loss, but they also lost the opportunity to make informed decisions about whether to invest money or take out a pension with the Equitable.
She added that policyholders who had complained to the ombudsman about the regulatory failings had a ‘justifiable sense of outrage’.
Ms Abraham also criticised the government’s failure to establish a single inquiry in 2001 that was not hampered by questions of jurisdiction and limited terms of reference as being ‘iniquitous and unfair’.
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