Over a million policyholders are believed to have been affected
by Equitable Life's near-collapse in December 2000, suffering
losses estimated at more than £4 billion.
In June 2008, Parliamentary Ombudsman Anne Abraham found "serial
regulatory failures" in the way the mutual life assurance company
was supervised.
Her report, Equitable Life: a decade of regulatory failure,
identified 10 instances of maladministration resulting in five
instances of injustice to policyholders. It recommended that the
Government set up an independent compensation scheme to assess
individual policyholder's claims.
But in its response published in January 2009, the Government
accepted, on a limited basis, only four instances of injustice and
it rejected many of the Ombudsman's other findings.
Instead of an independent compensation scheme for all
policyholders, it announced a discretionary scheme that will make
payments only to those "disproportionately affected" by losses it
believes were caused by maladministration.
Last December, the Public Administration Select Committee said
it would be "deeply concerned if the Government chose to act as
judge on its own behalf by refusing to accept that
maladministration took place".
In a new report, Justice Denied?, published on 19th March, the
Committee expresses its disappointment with the Government's stance
on compensation. "This may be a legally valid position, but we
think that most people would consider it to be a morally
unacceptable one," the report states.
One of the main arguments against a full compensation scheme is
that financial regulators should not normally be held liable in the
courts for financial loss. But the Committee says this argument was
introduced by the Government late in the day, in a way that was
"shabby, constitutionally dubious and procedurally
improper".
"Several years into [the Parliamentary Ombudsman's]
investigation, and only when it became apparent what the outcome
was likely to be, the Government began to argue that compensation
should not be available in cases of this kind," the report
states.
"There is no dangerous precedent to be set here. The Financial
Services Authority is now outside the Ombudsman's remit and has
been since 2001. There are no other cases with the Ombudsman
relating to financial regulation and new cases relating to the FSA
could not now be brought".
The Committee believes a discretionary scheme making payments
with no admission of liability is an inadequate remedy for
injustice.
"Nonetheless," says the report, "it could help to improve the
lot of some of those policyholders who have struggled to make ends
meet since the closure of Equitable Life to new business and on
this basis, if the scheme is the best available, we want it to work
as well as possible".
To this end, the Committee urges the Government to provide a
timetable for setting up the scheme and to remove the
disproportionate impact test, which it describes as an "unnecessary
complication." Confidence in the scheme will be undermined if it
only pays out in a very few cases, makes unreasonable demands on
policyholders to prove that they qualify, or caps payments at a
very low level.
Committee Chairman Tony Wright MP said:
“I give credit to the Government for apologising, for producing
a considered response, and for accepting the need for some kind of
payments scheme. But the Government has produced an essentially
political response to a quasi-judicial investigative report from
the Ombudsman, and as a result has ended up satisfying nobody.
"We have never argued that the taxpayer should have bottomless
pockets, but there is a very clear case for defined compensation
where the state itself has caused injustice. The Government’s
arguments seem to me to leave a gaping black hole in the way our
regulators are held accountable, and this needs addressing."
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