Mr. John Tiner
Managing Director (Insurance)
The Financial Services Authority
25 North Colonade
London E14 5HS

EMAG

5^th November 2001

Dear Mr. Tiner,

Equitable Life concerns:

We met you and your colleagues on October 10^th. We have two central concerns relating to the period since closure (i.e. not yet within the scrutiny of the Parliamentary Ombudsman's) - the FSA's role in the forthcoming compromise proposal and the ongoing management and administration problems at the Equitable Life (ELAS).

Compromise and the FSA

1. It is our understanding that the FSA will review the final compromise proposal in the light of policyholder classes when these have been determined by the High Court. The only remit will be to comment on whether the content is "not unfair" to all classes. The FSA will not promote the scheme or collude with the ELAS board.

2. EMAG and ELM made a joint submission to ELAS during the consultative process on October 10^th (encl.), which has not yet been acknowledged. In it you will see that we express the view that recent non-GARs (post 1998) have, in the draft, not been fairly treated. In the light of Nicholas Warren's opinion and more particularly your own counsel Ian Glick's, we cannot see how the FSA could possibly condone as "not unfair" a non-guaranteed uplift to these policyholders of just 2.5%.

3. On the subject of class definitions, we have not had sight of ELAS's brief to their solicitors, Lovells, so we cannot be confident that all policyholder classes have received adequate fair consideration, in particular annuitants and the internationals.

4. We understand that an Independent Actuary is not a pre-requisite of the Court in a section 425 "scheme of arrangement" but that it had been suggested by the FSA in this innovative newapplication. It is therefore particularly important to policyholders to have sight of the brief given by ELAS to Michael Arnold, since the Court may subsequently rely upon it - as was the case recently with AXA.

5. At a meeting with EMAG on February 9th, James Crosby agreed that members should have details of the sales contract. Despite half a dozen letters over months to both ELAS and Halifax, EMAG has failed to get the details of the contract of Feb 4^th 2001 published to policyholders. We hear that senior management from HBOS (Halifax Bank of Scotland) is now intimately involved with ELAS but the owners, the members, are still not privy to what may be arduous and still secret undertakings therein.

6. For a "scheme of arrangement" there must be an up-to-date "statement of affairs". Thus far, policyholders (and their IFAs) have received woefully inadequate financial information to base any informed conclusions on such a pivotal decision. Since ELAS now admits that the voting pack will not go to print until early December, our request for comprehensive figures as at September 30^th is fair and achievable.

   THE FSA could usefully require ELAS to provide what is described in points 3 - 6.

Management and administration problems at the Equitable Life

1. On Radio 4's MoneyBox November 3^rd, Vanni Treves admitted that ELAS's target turnaround time to effect a transfer or surrender is currently 4 - 6 weeks after the time of receipt of completed and fully-in-order paperwork. In itself that is unacceptable, but it has rarely been delivered since July 16^th's devaluation.

2. The FSA has a duty, "to ensure orderly financial markets". To the great distress of tens of thousands of policyholders, many of whom are still waiting anxiously, this has simply not been achieved in any area by ELAS at any time in the year 2001.

3. On October 30^th 2001, Equitable's policyholders finally began to receive their new fund valuations, more than 14 weeks after the draconian, unprecedented cuts. In the middle of that period all were asked for comments on a draft compromise, without knowing their revised fund's value (or any detail of the Society's financial state). The FSA is reported to have said that this delay was reasonable under the circumstances. Time and again we hear that, "the FSA is monitoring the situation."

4. The only known occasions of FSA intervention in the Equitable Life were the closure of the fund and the written instruction to IFAs. There is a widely held view that the FSA, by sending out an advisory, counter-productively intimidated IFA's from giving ELAS policyholders advice. IFA's, most of whom have very limited experience of Equitable, could be forgiven in the absence of any meaningful financial data, for refusing to get involved and this is what has happened. This was exactly the opposite result to what one would have wished and it reflects badly on the FSA.

5. The previous ELAS board communicated its intention to resign en masse on Dec 20^th 2000, immediately after the closure of the with profits fund. The FSA is charged with ensuring that there is a competent management team in place. ELAS was a £27bn mutual with circa 1.25m policyholders. We know from the June 30^th return that liabilities exceeded assets, liquidity was wafer thin and solvency was only achieved in a closed fund by the "fudge" of incorporating £1bn of future profits.

6. Equitable had been a high-handed, secretive, aggressive, marketing-driven, direct-selling, mutually owned Society with almost none of the normal IFA and PLC checks and balances. On closure, not only was the tap of new income turned off, but a flight of policyholders must have been anticipated. Under these dire circumstances the FSA should have been acutely active and attentive to safeguarding policyholders' reasonable expectations - not just "monitoring the situation".

7. Despite this, during the first three months of 2001, with no effective board in place, the FSA allowed the sale of all assets and staff of the Society, without recourse to the owners. The FSA appeared to endorse the transaction at the time and Michael Foot, in a meeting with EMAG in late March, positively welcomed it.

8. The FSA stood by whilst the old discredited board presided over replacing itself. Vanni Treves, with no experience of the life assurance industry, was chosen as part-time chairman. Probably without precedent, he hand-picked every single member of his new board. He resisted at every turn all overtures to appoint lay-member directors.

9. Immediately on his appointment, Treves promoted Charles Thomson to chief executive. This was the fourth time in succession that the Appointed Actuary had been promoted to fill the role. Charles Thomson had no appropriate general management experience and had been with the Society for just six weeks. Treves ratified turning Equitable Life into a virtual Society by contracting out all services and retaining only a handful of employees to steward a £25bn fund. Only a replacement financial director (Charles Bellringer) has subsequently been recruited.

10. The effect has been disastrous. There is an intellectual vacuum at the centre of the Society because the three full-time executives have been under siege all year.

    The virtual Society isn't working. Little has been done in 2001 to address the inadequate internal management. The loyalty of 1m plus remaining policyholders has been penalised, whilst those that left received more than their asset share.

11. "Transparency" has been repeatedly promised by Treves and remains totally undelivered. The comprehensive financial review conducted in June has been withheld from members with a series of unacceptable derisory excuses. The oft repeated attribution of the 16% devaluation to stock market falls simply does not stand up to scrutiny. Deplorably, neither the FSA nor the new Appointed Actuary, Peter Nowell, has insisted on publication in any form for policyholders and their IFAs.

12. At a meeting of Action Group leaders and the board of ELAS on September 18^th Charles Thomson admitted that ELAS did not even track surrenders, crystallisations, departures etc by value or numbers, so the figures could not be made available. This, during a period when the number of policyholders in the Society was decimated. The flood of panic departures has continued unabated.

13. At the first meeting between Action Groups and the board on August 22nd the new ELAS board said that they had only one agenda item - securing the vote for a compromise. EMAG offered to prepare a white paper on revising the archaic constitution, reforming ELAS's governance, addressing unitising the fund, reviewing strategy and policy in the now closed fund to help the Society through the traumatic days ahead. The offer was dismissed as irrelevant. EMAG has subsequently made submissions on revising governance to the FSA and to the Sandler Review.

14. We believe that the ELAS board has not begun to adequately address the post-vote future - just two months away. EMAG suggested that the compromise contain time-phased benefits to reward loyalty. Our board told us that it was a matter of indifference to them whether policyholders chose to stay or leave. One is forced to suspect that this board anticipates handing the Society over lock, stock and barrel to Halifax. Even if this is in members' best interests, it would be prudent to do so from a stabilised position, having evaluated all options and consulted members.

N2 is less than a month away. Whatever the outcome of the forthcoming compromise vote, it continues to appear that ELAS is being unsatisfactorily managed without any visible progress on administration problems or addressing of the future. In the light of the above concerns, we encourage the FSA after N2 to entertain taking, for the first time, a pro-active role as catalyst to improve the lot of the beleaguered policyholders instead of just "continuing to monitor the situation."

Paul Braithwaite
Chairman EMAG
Equitable Members' Action Group

Liz Kwantes
Chair ELMHG
Equitable Life Members Help Group
www.equitablelifemembers.org.uk