17 July '03 - EMAG's unanswered questions at the FSA AGM

1. One of the FSA's statutory objectives is the protection of consumers by the provision of accurate information.

On 16th July 2001 Equitable Life announced that, following a financialt review, policy values had been cut by 16%. The directors' explanation of this cut was confusing and Equitable Members' Action Group asked Equitable Life to publish the financial review or a summary of it. The Directors refused. EMAG asked the FSA to require publication. The FSA took no action.

Over the last 2 years EMAG has discovered various matters, which we have No doubt were included in the financial review. For example:

1.. The fact that the Equitable's non-profit business had absorbed almost all the Society's investment return for 2000 (and had made a big dent in the returns for previous years)
2.. The fact that more than three-quarters of the Society's policies contained the right to a Guaranteed Interest Rate, which means it could not operate properly as a with-profit fund.
3.. The fact that the Regulator was informed of Guaranteed Annuity Rate liabilities of £1.6 billion two years before that information was provided to policyholders.
4.. The fact that assets fell short of policy values at 31/12/00 by at least 10% and probably nearer 13%
5.. The fact that Equitable had repeatedly voted bonuses in excess of assets from 1994 to 1999 of the order of £1-2 billion pounds. The FSA recommended the Directors' compromise proposals without the proper disclosure of these facts.

Is this an example of how the FSA protects consumers?

2. I'm a locked in annuitant with Equitable Life and I want to take the FSA To task for not protecting me and 50,000 other with profits annuitants in the compromise that was voted on in January 2001.

We had been told that annuitants would have their cuts smoothed over many years and it was on that assurance I voted. The FSA now says it didn't endorse the compromise. RUBBISH!

I refer you to a 28 paragraph, and I quote........."

Locked-in annuitants are unique: Unlike late-joiners (who have recently been judged by the FOS as deserving compensation) WE never had the opportunity to leave to preserve our rights.

What's more, the land of milk and honey held out to us, with the FSA's tacit endorsement, hasn't materialised. In fact I've recently suffered a 30% reduction in my pension because Equitable welched on their undertaking to smooth our cuts, again with the approval of the FSA.

The FSA were WRONG to endorse the compromise and were wrong, in my opinion, to conclude, that us annuitants were not unique. They led us into a trap. This is not my, or 50,000 other annuitants idea of protecting policyholders. The FSA has blood on its hands.

3. Does the FSA believe that the maintenance of confidence in the financial system relies on the public perception that investors are properly protected?
The Ombudsman's report on 'light touch' regulation exonerated the FSA, incidentally it was FAR less critical than the FSA's own internal Baird report, but must actually have been COUNTER-PRODUCTIVE to confidence. Dr Vincent Cable MP summed it up well when he described to Jeremy Paxman the effect of the PO's report:

"The wider issue you raise is this. Occupational schemes are falling all over the place. People are going to have to save for themselves. THEY NOW KNOW THAT THEY CANNOT RELY ON THE REGULATOR EITHER TO ENSURE THAT COMPANIES ARE SOUNDLY MANAGED OR THAT THEY CAN BE PROTECTED FROM MIS-SELLING.

This severely undermines confidence in future savings."

Was not, therefore, the report of the Parliamentary Ombudsman actually counter-productive to confidence?

4. Standard Life and Equitable demonstrate the intrinsic weakness and unaccountability of mutuals. The FSA parrots a mantra that they are subject to democratic control. PIFFLE. In practise it is TOTALLY impossible for the member owners, however well they organise, to exercise any influence over self-serving, self-perpetuating boards of cronies. In the last three troubled years of Standard Life and Equitable, never more than 10% of votes have been exercised and the boards have gone their own way WITH DISASTROUS CONSEQUENCES. When will the FSA address the governance of mutuals instead of hiding behind the pretence that they are democratic?"

5. Can we have a commitment from the FSA's new chairman that he will set about, as a matter of urgency, 'cleaning house' at the FSA on pensions and insurance? At present, policyholders seem to be reliant on chance questioning by the Treasury Select Committee to reveal cover-ups.

There appears to be NO accountability. Therefore, will the FSA volunteer in the November 2003 Treasury review to agree to formalise channels of accountability and the spinning off of responsibility for "conduct of business", which is in systemic conflict with policyholder protection as pointed out by the Consumers' Association.

6.The Ombudsman's report said that the FSA was 99.9% certain that Equitable Life would be sold in the autumn of 2000. The FSA had been very extensively briefed by the Treasury in 1998, had kept Equitable on watch from its own inception, had the full regulatory returns and private reports which gave it a comprehensive picture. How, the, could the FSA reach that demonstrably wildly inept conclusion, when on the basis of only a limited puffed sales prospectus 16 competitors walked away within three months and wouldn't touch Equitable. This demonstrates the absurd naivity within the FSA on what is arguably a commercial judgement that the FSA should not have even been entertaining. Their job, under "conduct of business" was to protect new investors.

7. On page 14 of the FSA's annual report is written:

"Consumers need to have better and timely access to impartial and accurate information to help them in their financial decisions."

Hear, hear!

But when does it begin? For Equitable Life policyholders that is a hollow laugh. The FSA has never supported EMAG's pursuit of more comprehensive and timely information to be provided to IFAs and the member/owners.

8. I have the misfortune to be an Equitable Life with-profits annuitant and I have been worried sick about my pension every day for the last two years. My income has just gone down, not by 20% but by 29% and I understand that there are definitely more cuts to come. My question is:

EXACTLY what has the FSA EVER done to protect Equitable Life policyholders?

Because, frankly, I'm more and inclined to agree with what broadcaster Libby Purves wrote in the Times twop yearts ago about the FSA's regulation of Equitable Life, and I quote:

"Am I alone in wondering whether it might not be more effective to replace Sir Howard Davies's Financial Services Authority with a lucky rabbit's foot and a bunch of white heather? Or perhaps a chocolate teapot?"

I repeat: What, exactly, has the FSA ever done to protect Equitable Life policyholders?"