Equitable Life

Written by Vincent Cable MP and published in Liberal Democrat News on Thu 14th Nov 2002

As you are aware, as MP's our primary concern is with the government's role. The position is as follows: the government is most unlikely to agree to rescue the company and, indeed, it would be wrong for the government to bail out a company (albeit, a mutual) which has been very seriously mismanaged.

A more realistic objective is securing some compensation. This question primarily hinges on whether the government regulator (before 1999, the DTI, subsequently the Treasury and the FSA), was negligent.

The FSA internal, Baird Report, published in 2001, is the basis for judging whether this has occurred (there are serious questions about why the FSA was investigating the FSA, but that is now history).

The FSA Report does suggest serious failures in the way that the FSA itself handled the problem. The way should be open for individuals such as yourself to seek compensation through the parliamentary ombudsman (you can apply through the office of your local MP).

On 29 October, 2002 the Ombudsman decided, following publication of the Baird Report, to investigate the FSA's actions on behalf of the Treasury in the period 1 January 1999 to 8 December 2000.

Further, the Ombudsman's investigation relates to one individual complaint that is considered to be representative of the many received. On 29 October the Ombudsman also warned that investigations were taking an average of 43 weeks to complete and that this issue was expected to take longer than the average to conclude.

It is obvious that the problems at Equitable started prior to January 1999.

However, the Ombudsman has stated, March 2002, that they await the completion of the Government (Penrose) Inquiry before deciding whether to consider further aspects on the issue, including events before January 1999.

As the Penrose Inquiry does not have a deadline and is not expected to report back before 2003 this decision is causing unacceptably severe delays.

I have written to the Ombudsman asking for an update regarding when the report will be finalised and asking that Ombudsman reconsiders the decision to delay the inquiry into events prior to 1999.

Additionally, I have been in correspondence with Ruth Kelly, the Treasury Minister, on this issue.

On the 22 October Ruth Kelly responded and stated "My understanding is that there has been no suggestion that his [Ombudsman] work has been delayed due to the Penrose Inquiry."

This contradicts the statement by the Ombudsman.

In response I have written back to Ruth Kelly highlighting the contradictory statements and requesting that the process of investigation is expedited.

To find out more about the issues you may wish to contact the action groups on www.emag.org.uk or www.equitablelifemembers.org.uk

Until recently, life assurance companies were subject to two separate regulatory regimes. Prudential regulation is concerned essentially with solvency and sound management, while conduct of business regulation relates primarily to marketing and the advice and information provided to current and potential investors.

Responsibility for prudential regulation passed from the Department of Trade and Industry to the Treasury in January 1998, and was then contracted out to the FSA in January 1999, though formal responsibility remained with the Treasury. Responsibility for the conduct of business regulation fell to the Personal Investment Authority (PIA) and, in June 1998, that too was contracted to the FSA.

On 1 December 2001 the FSA became responsible in their own right for both aspects of regulation.

Neither Equitable Life, the PIA nor the FSA have ever been within the Parliamentary Ombudsman's jurisdiction. The Ombudsman can look only at the actions of the Department of Trade and Industry, the Treasury and the FSA where it was acting on the Treasury's behalf.

She cannot consider any complaints about the mis-selling of policies, nor can she consider any complaints about FSA's actions after 30 November 2001.

Please get in touch with my Westminster office if you would like a copy of my letter of 6 November 2002 to the Parliamentary Ombudsman, a Copy of Ruth Kelly's letter of 22 October 2002 to me and a copy of my letter of 6 November 2002 to Ruth Kelly.