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: 29/11/2002 - Letter to Sir Howard Davies at the FSA - prompting him to prick his conscience over FSA failings

29 November '02 - Letter to Sir Howard Davies at the FSA

Sir Howard Davies
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS.

29th November, 2002.

Dear Howard,

Sharpening your conscience regarding Equitable

I read the piece by Grant Ringshaw in last Sunday's Telegraph and write to help you sharpen up your conscience. The comments reported in your interview epitomised what I wrote in my letter published in the Financial Times on 21 November, "not me guv". I attach five examples of failure by the FSA:-

  • the failure to scenario plan for the possible outcomes of the HOL decision
  • the failure to stop the Society taking new business after the HOL decision
  • a failure to require the Society to declare and resolve the Guaranteed Interest Rate issue
  • a failure to ensure that the Society provided clear information to its members
  • a failure to help members get a measure of democratic control of their mutual

The Committee of EMAG has the unanimous view that the FSA's main concern regarding the Equitable is to ensure that it does not become a liability to the Treasury. While you have published fine words for the future about how members/policyholders should be treated, you have done absolutely nothing to assist Equitable members now who are in consequence being abused by the conduct of the Society they nominally own. You have Equitable on financial watch - we want you to put it on conduct of business watch to ensure that members get the information to which they are entitled and require for assessing their positions, and the democratic control of their mutual. As Ms. Ruth Kelly commented in the House this Wednesday "The FSA is working extremely closely with Equitable's management". You should thus be aware of what is going on; if you allow the Equitable's abysmal standards of business conduct to continue then "you guv" are responsible.

Yours sincerely,

Chairman of EMAG

c.c. John Tiner, EMAG Committee + website; Equitable Board; various journalists; various politicians; Allan Asher.


The failure to scenario plan for the possible outcomes of the HOL decision:
You may recall that the Baird report was very critical on this score.

The failure to stop the Society taking new business after the HOL decision:
The FSA should have closed the Society to with-profits (but not unit linked) business until it had found a buyer which would assume or resolve the GAR liabilities. By allowing the Society to remain open you invited new members to put their money into a fund on terms that implied that unless there were a sale of the fund to a party that would accept the open ended liabilities of the policies with Guaranteed Annuity Options (GAOs), then they would be liable to share in those liabilities . This was a clear breach of their "policyholders' reasonable expectations".

Additionally, as is clear from Baird's report, the Government's Actuary's Department was well aware that the Equitable's solvency position was very weak and was propped up by "financial engineering" (which is currently falling apart). The FSA was thus inviting members to put their money into a company which even excluding the GAO issue, had been overtrading and was financially weak.

Then having allowed new members to put in some £2bn, you did not require the Equitable in its compromise to pay those members back their money (as we recommended). Rather you consented to the Equitable discounting Warren and Lowe's second report that non-GARs had a misselling case, and that it was particularly strong for those who had joined after the HOL decision. In consequence many such people were put in the invidious position of deciding whether to sign up to the Compromise and accept the consequences of the Society's misrepresentation with which the FSA colluded, or to leave before the Compromise at the cost of the MVA and then subsequently hope to take on the Society (with its £bns of policyholders funds) in legal proceedings. After the deal was done you asked Equitable to commission an actuary (Bacon & Woodrow) to assess the damage done to the interests of the non-GARs, but for many that was too late. We are now faced with another expensive S425 - is one purpose of this arrangement to keep the FSA out of court?

A failure to require the Society to resolve the Guaranteed Interest Return issue:
In August 2001 we proposed that the GIRs should be incorporated in the S425 handling the GARs, but as usual the Society ignored us. Now the GIRs hamstring the Society's investment policy.

A failure to ensure that the Society provided clear information to its members:
On 12 November I sent Mr. Tiner a long letter setting out nine examples of the way the Society has failed to provide information to its members. The examples cover a range of matters, and include examples of lack of provision of information such as investment returns by asset class and explaining the consequences of the GIRs that are contrary to the clear wishes of the FSA as set out in the With-Profits Review.

Since they assumed control of the Society Treves and Thomson have run a policy of obfuscation and spin and appear to have breached Article 65 of the Society's Constitution by not providing information to members on the Society's financial position, and then adding insult to injury by giving us specious reasons for not providing the information to which we are entitled. Their policy has not only discredited them in the eyes of financial journalists , more seriously their policy has prevented non-annuitant members from making an informed judgement as to where their interests lie. They also failed annuitant members both in the Society's Annual Report and Accounts and at the AGM where there is no mention of the annuitant's prospects in the speeches of Treves and Thomson. When an annuitant asked Treves at the AGM whether his annuity was safe or secure, Treves responded to the effect that the Society was solvent. He did not give a complete answer i.e. at that juncture the board considered with profit annuitants were being paid too much and so a material reduction was inevitable for almost all with profit annuitants.

One of the nine cases to which I referred in my letter was the difficulty that members have experienced when leaving Equitable in obtaining the basis of the valuation of their policies. EMAG has received a number of cases, and been advised that the FSA had refused to help. In a letter to Mr. Tiner (18 November) I described my own experience and provided him with recent evidence of seeming anomalies between changes in values between my policy and that of my wife over the period 7 May to 25 November. I was advised by a young woman in Equitable's customer "services" (so called) department:-

"We do not provide details of how we arrive at surrender values. It is not a service we offer".

I regard this as outrageous. The FSA should insist that any company carrying on a pensions business in the UK should provide within 30 days of request a statement of that members interest reconciled to the last annual statement. In addition an annual statement should be produced showing all transactions on a policyholders account. Failure to honour either requirement would lead to public regulatory censure. If a bank for example failed to provide bank statements on an account then customers would complain and move their money elsewhere. But for the recalcitrant insurance company providing pension products failure to provide a reconciliation or an adequate explanation of adjustments cannot be dealt with so easily.

Your report "The future regulation of insurance: a progress report" October 2002 states (among other things) that "The FSA has identified the following strategic aims for the whole of the regulated industry:-

" consumers are better able to make informed choices and achieve fair deals in their financial dealings…

There are three key elements to achieving our strategic aims in the area of insurance. Firstly, to secure a fair deal for consumers, through:-

" requiring firms to treat customers fairly before, during and after the point of sale, for example by giving clearer and fairer information

After buying long-term products, consumers must be given the information necessary to enable them to monitor the performance of their product to help ascertain whether it continues to meet their long-term needs. Where it does not, consumers should be able to switch products without incurring excessive cost".

In view of this publicity surrounding the Equitable, including on the information issue, and the fact that the FSA talks to leading financial journalists, I find it difficult to believe that the FSA has not been aware of the unhelpful and on occasions downright misleading way in which members have been treated. Yet the FSA has done nothing to assist members - all we have is fine words for tomorrow, while today we are being abused by the conduct of the Society we nominally own.

A failure to help members get democratic control of their mutual:
On 20 March 2002 I wrote to you stating (among other things) "we want mutuality to provide effective accountability to members" and I explained how Treves had gerrymandered the vote for directors. You responded "not me guv" by pointing out that the governance of companies is the responsibility of the Department of Trade & Industry, and that it is preparing a Bill on Modernising Company Law. I expect when you wrote to me you were well aware that the focus of the Bill was on mainline companies, and (notwithstanding our submission) is unlikely to handle the particular issues that affect the very few large mutual life insurance companies unless the FSA weigh in.

I attach a letter I wrote to Treves drawing his attention to the petition signed by 16,179 members who asked for a change (in line with proposals by Nationwide and Standard Life) in the provision for calling an EGM and proposing a resolution . Consistent with its continuing disregard for the views of members, the Board's recently published proposals for changing its constitution are trivial and ignored the petition. The Society's proposals also completely ignored the changes EMAG proposed (again, similar to Nationwide and Standard Life, see attached) to change the voting structure, which currently allows Treves to gerrymander the voting by casting non-mandated proxy votes. At the last election he cast about a fifth of the votes. The Board's proposals are shabby.

It requires little wit to work out that a contributing factor to why the former board and management of Equitable (and Enron) were able to get themselves in such messes was weak checks and balances. It is also a reason why the current secretive Board selected as Treves' "team" has subsequently been able to make the worst of a bad situation and to continue wrecking the Society where the previous Board left off. We believe the FSA should press the Society to adopt democratic accountability to the members. The appointment of members to the Board of Equitable is subject to the approval of the FSA. We believe you should exercise your power to require an individual to adhere to soundly based democratic policies and to the FSA's views on the need for transparency and the production of clear information to policyholders.