The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

Correspondence: 08/02/2005 - EMAG wrote to the three political parties

Stephen Timms MP
Financial secretary to the Treasury
The Treasury
1, Horse Guards Road,
London SW1A 2HQ
Equitable Members' Action Group (EMAG)
42 Bartholomew Villas
Kentish Town
London NW5 2LL

8 February 2005

Dear Mr. Timms, EMAG is writing at this time to the political parties to ask for explicit written responses to five explicit questions related to the Equitable Life scandal, such that policyholders will understand each party's position accurately. We intend to publish the responses, thus we would request a timely and comprehensive written response on the Labour Party's behalf, please.

Results Following the PO's Report

Our first concern is with the results of the Parliamentary Ombudsman's present (second) investigation into prudential regulation of Equitable Life. We believe that our own analyses, those of Lord Penrose and others cite ample evidence of regulatory failure and resulting injustice. Our main concern is with Government and Parliament's response to the Ombudsman's report on the investigation.

We understand that the Ombudsman, should she find injustice caused by maladministration in the Equitable Life case (which we expect) has considerable leeway in the degree to which she recommends the form and quantum of a remedy. At the least we can be sure that her report will give a precise description of any injustice that she may attribute to maladministration. In any case, it would be the Government of the day's prerogative to propose a scheme in these circumstances and for the Ombudsman then to comment on the manner in which it makes redress for the identified injustice. There is, we understand, usually a period of three months for the Government's proposal. There is then the option for the PO to comment on the developing proposal before a finalised proposal is put to Parliament.

It is rare for an Ombudsman's recommendation not to be implemented; having only occurred three or four times in the lifetime of the Parliamentary Ombudsman's office. Three cases were related to access to official information and no resolution was achieved, even after Parliamentary discussion. Another case however, was very relevant - it was Barlow Clowes. The Ombudsman's identification of injustice following from maladministration was not accepted by the Government. There was much Parliamentary pressure, including from a Mr. Gordon Brown MP, who strongly pressed the Government to accept the Ombudsman's conclusion! In the end the Government provided compensation, but under the formulation: "we do not accept that the DTI was guilty of maladministration but, from respect for the Ombudsman's office, we will pay up anyway".

Q1: Will you commit to support the implementation of the Ombudsman's recommendations and the Ombudsman's final decision on injustice, maladministration and remedy?

Equitable Life ran its with-profits fund in a fairly simple way, based on common rates of guaranteed and non-guaranteed bonuses, despite different guarantees offered to different policies. An analysis of losses due to the persistent asset deficit run by Equitable Life was produced for EMAG by Burgess Hodgson and submitted to the chancellor in November 2003, which showed how a straightforward scheme could provide fair remedy for injustice due to maladministration.

Q2: In the event of a recommendation for compensation, will you support a straightforward and relatively simple approach to compensation in the interests of clarity, swift results and justice, given that it will by then be more than five years since the Equitable scandal surfaced?

Separation of Consumer Protection from Maintenance of Market Confidence

In the case of Equitable Life, the regulators, having previously rarely exercised its ability to act in public, appear to have found themselves inhibited from making public their concerns. Maintenance of market confidence, in this case, retail market confidence, seems to have taken precedence over the protection of new or repeat investors. This is distinctly different from the FSA's approach to publication of company performance results to the capital markets.

Q3: Will you support a rigorous review to address the possibility of separation of the responsibilities for protecting consumers from the maintenance of market confidence?

Accountability of the FSA

The FSA is a non-governmental body, not subject to either the Parliamentary Ombudsman or the Audit Commission. It is overseen by the Treasury and, ad hoc, by the Treasury select committee, but its very wide brief challenges the current modest supervisory regime.

Q4: Will you support subjecting the FSA to the PO and Audit Commission and to the strengthening of the Treasury Select Committee's machinery for oversight?

Independence of the Financial Ombudsman

The Financial Ombudsman offers an arbitration and adjudication service between financial services organisations and complainants. But its budget is provided by the FSA, its directors are appointed by the FSA and the Memorandum of Understanding under which it operates blurs true independence for the FOS.

Q5: Will you support measures to strengthen the independence of the FOS, such as giving Parliament the responsibility of appointing its directors?

EMAG hopes and believes resolution is achievable in the case of Equitable and that its injustices can be righted, resulting in a better approach to fair dealing in the financial services market for the good of investors.

Yours sincerely,

Paul Braithwaite
General secretary of EMAG
Cc EMAG website: www.emag.org.uk