Gov't offers Eq Life apology but limits compensation
UK - The UK government has accepted charges of maladministration in some areas relating to the near collapse of Equitable Life, but has only agreed to set up a payment scheme for policyholders "disproportionately" affected by the event.
In response to the Parliamentary Ombudsman's report on the prudential regulation of Equitable Life from 1988 to 2001, published in July last year, Yvette Cooper, chief secretary to HM Treasury, justified the delay by stating the government had "carefully considered this substantial report over some months as it has raised complex and important issues".
Reading a statement to the House of Commons, Cooper said: "We [the government] agree that there has been maladministration in particular areas and also that government action is merited as a result".
She highlighted issues of maladministration by public bodies in several areas including the earlier financial regulator known as the Personal Investment Authority (PIA), and in certain potentially "misleading" statements made by the Financial Services Authority (FSA) after 2001 - when the FSA came into being.
Cooper said: "I think the whole house regrets the mismanagement of the society that caused problems. And I wish to apologise to policyholders on behalf of the public bodies and successive governments responsible for the regulation of Equitable Life between 1990 and 2001, for the maladministration we believe has taken place."
She said the government had looked at the Ombudsman's proposals for compensation "in some detail", but added "it is not generally appropriate for the taxpayer to pay compensation even where there is regulatory failure".
The government said the responsibility to minimise risks and prevent problems lies "first and foremost" with the people who run and own the institution, and Cooper warned it would have "serious repercussions" for the taxpayer if they were to "provide a remedy for all losses every time the regulator fails to prevent a financial institution getting into trouble".
However, following representations by both MPs and others, the government acknowledged "some policyholders have been disproportionately affected by the events at Equitable" and as a result it has decided to "set up an ex-gratia payment scheme to help".
To begin the process the government has asked Equitable Life to provide detailed policyholder information to calculate the losses involved and it has appointed Sir John Chadwick, a former Lord Justice of the Court of Appeal, to look at the information and provide advice on a number of key issues, including the extent of relative losses suffered by policyholders.
That said, despite acknowledging some responsibility for the failure of the insurer in 2000 - when Equitable closed to new business and said it was unable to cover additional liabilities of £1.5bn - the Treasury minister argued "even where there was maladministration, there was also a responsibility on the part of the Society".
As a result Chadwick will also be asked to determine:
Cooper admitted there have been concerns about the delay in resolving the Equitable issue, and confirmed the government had asked Chadwick to "advise as quickly as he is able, including providing interim updates and conclusions on an ongoing basis so that work can progress on the practical issues without waiting unnecessarily for all his work to be concluded".
That said, while the Ombudsman recommended the compensation system should be established in two and a half years, Cooper admitted "our initial assessment of the Ombudsman's approach is that it might have taken significantly longer than that to fully implement".
In addition, Cooper stated the new payment system would be fair, but would also take into account "the position of the public finances, as well as practical considerations'.
"We do not believe it would be right to set up a compensation scheme in the way the Ombudsman proposed but we do believe this is the right response. I hope the House will recognise that there is no easy solution to the problems of Equitable and the faults that were found," added Cooper.
The government's decision to accept some responsibility for the insurer's near-collapse and to provide a form of compensation follows a number of reports both from the UK Parliamentary Ombudsman and a special committee of inquiry established by the European Parliament, which published its report in January 2008. (See earlier IPE articles: UK accused of breaching 'loyal cooperation' over Eq Life)
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