Supplementary Memorandum by the Parliamentary Commissioner for Administration (OM 04)
EQUITABLE LIFE AND THE OMBUDSMAN'S JURISDICTION
1. To date I have received 280 complaints about the Equitable Life Assurance Society (`Equitable Life' or `the society') referred to me by 176[1] Members. At the session on 21 March 2002 at which I gave evidence on my Annual Report for 2000-01, the Select Committee asked me to provide further information about restrictions on my jurisdiction in relation to complaints about the society.
2. This note sets out my understanding of the statutory framework.
THE ACTIONS OF EQUITABLE LIFE
3. Equitable Life itself is clearly not within my jurisdiction. The bodies in my jurisdiction are those listed in schedule 2 to the Parliamentary Commissioner Act 1967. The actions of Equitable Life, which is not so listed, are not within my jurisdiction. Thus, insofar as complaints are related to the terms and conditions of the society's policies—whether of personal pension, additional voluntary contribution, or any other plans—or the nature of calculation (or actual amount) of annuities or dividends payable to policyholders, I have no power to investigate them.
THE REGULATION OF EQUITABLE LIFE
4. Section 5 of the 1967 Act provides that I may investigate any action taken in the exercise of an administrative function by, or on behalf of, a body within my jurisdiction. In principle, that would include the administrative actions of those bodies that undertake regulatory functions on behalf of a body within my jurisdiction.
5. Life assurance companies such as Equitable Life were until recently subject to two separate regulatory regimes: prudential regulation and conduct-of-business regulation. The former is concerned essentially with the solvency and sound management of life assurance companies; the latter with the marketing and sale of a company's products and the provision of related advice to current and potential investors.
6. The statutory framework which governed the regulation of Equitable Life before 2 December 2001 was, for prudential regulation, the Insurance Companies Act 1982 (`the 1982 Act') and, for conduct-of-business regulation, the Financial Services Act 1986 (`the 1986 Act').
PRUDENTIAL REGULATION BEFORE 2 DECEMBER 2001
7. The 1982 Act vested certain authorisation and supervisory functions related to the solvency of life assurance companies in the Secretary of State for Trade and Industry (the DTI). With effect from 5 January 1998, as part of the preparations to establish a single financial services regulator, the functions of prudential regulator passed from the DTI to the Treasury[2].
8. Using the powers granted it[3] by Parliament, the Treasury delegated its functions related to the supervision of life assurance companies such as Equitable Life to the Financial Services Authority (the FSA). The FSA's performance of these functions on behalf of the Treasury was governed by a contract between them dated 18 December 1998; this contract was amended on 14 December 2000.
9. During this period, Treasury Ministers remained responsible for the prudential regulation of insurance companies and answerable to Parliament for its proper operation; the FSA was accountable to the Treasury for the effective exercise of those functions that had been delegated to it.
10. The administrative actions of the DTI or of the Treasury as prudential regulator in the period before 1 December 2001 are within my jurisdiction. The actions of FSA, when acting as prudential regulator on behalf of the Treasury after 18 December 1998 but before 2 December 2001, are similarly within my jurisdiction.
CONDUCT-OF-BUSINESS REGULATION BEFORE 2 DECEMBER 2001
11. The 1986 Act conferred powers[4] on the Securities and Investments Board to regulate the conduct of insurance business, including powers in relation to certain aspects of long-term insurance contracts. The 1986 Act also made provision for other investment activities to be regulated by self-regulating organisations (SROs) which met specified criteria for recognition. The SRO relevant to Equitable Life was the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO): Equitable was a member of that scheme and joined the Personal Investment Authority scheme, which replaced LAUTRO and other SROs, in 1994. The FSA took over responsibility for the conduct-of-business regulatory functions of the SROs on 1 June 1998.
12. At no time have the Securities and Investments Board or SROs such as LAUTRO or the Personal Investment Authority been within the Parliamentary Ombudsman's jurisdiction.
THE REGULATORY REGIME FROM 2 DECEMBER 2001
13. The Financial Service and Markets Act 2000 replaced the regulatory arrangements described above. With effect from 2 December 2001, the FSA is now responsible in its own right for both the prudential and the conduct-of-business regulation of insurance companies.
14. The FSA is not within my jurisdiction, not being listed in schedule 2 to the Parliamentary Commissioner Act 1967; it has never been in my jurisdiction except insofar as it acted on behalf of a body so listed (paragraph 4).
ASSESSMENT
15. Parliament has placed a number of restrictions on what I can and cannot investigate in respect of the issues arising from complaints about Equitable Life. The law restricts my jurisdiction inter alia in the following ways:
— I cannot investigate the actions of Equitable Life itself, including the information provided by the society to current and potential policyholders in relation to its products: Equitable Life is clearly outwith my jurisdiction;
— I cannot investigate the conduct-of-business regulation of the society: the selling of products and the provision of information by Equitable Life was regulated successively by the Securities and Investments Board, by LAUTRO, and by the FSA, none of which has ever been in my jurisdiction; and
— I can investigate the prudential regulation of the society only during the period before 2 December 2001; thereafter the regulation of insurance companies was undertaken by the FSA on its own behalf and is therefore outwith my jurisdiction.
16. Many of the complaints referred to my Office relate to the alleged mis-selling of policies by Equitable Life, sometimes many years ago, or to its alleged failure to provide adequate and accurate information about the performance of the society's products to existing or potential policyholders. Others criticise the regulation of the society. I have no power to investigate the majority of such complaints, being able to investigate only the prudential regulation of Equitable Life before December 2001.
17. However, as the Committee is aware, once the Baird Report (the internal FSA review) had identified shortcomings on the part of the regulators, I decided to launch an investigation into the discharge by the FSA (on behalf of the Treasury) of its prudential regulatory functions with respect to the society. This investigation was limited to the period covered by the Baird Report - January 1999 to December 2000.
18. I have written to Members on several occasions to keep them informed about progress on this investigation, which relates to one broadly representative complaint.
CONCLUSION
19. I believe that those who have made a complaint about Equitable Life should receive an authoritative and comprehensive explanation of events. To provide this will require an exhaustive investigation into all the actions of all the relevant parties over the whole time period in question.
20. It would not be satisfactory in my view to restrict this investigation unnecessarily or to limit the time period under investigation. Thus any investigation must examine the actions of the society itself (which I cannot do) and of all those who do, or did, exercise supervisory or regulatory authority over it. The law places several restrictions on my ability to conduct such an investigation.
21. On 31 August 2001, the Government announced that it would set up an independent inquiry, chaired by the Lord Penrose, whose terms of reference are:
`To enquire into the circumstances leading to the current situation of the Equitable Life Assurance Society, taking account of relevant life market background; to identify any lessons to be learnt for the conduct, administration and regulation of life assurance business; and to give a report thereon to Treasury Ministers'.
22. I intend to await the outcome of this inquiry, which does not suffer from the restrictions on its jurisdiction that affect me in the way that I have described, before considering whether I might usefully intervene further. Before I (or my successor) would intervene at that stage it is likely that there would have to be, first, indications of unremedied injustice to individuals caused by maladministration by those regulators within my jurisdiction and, second, the absence of proposals to remedy such injustice.
23. I hope that this explanation of my jurisdiction is helpful to the Committee.
M S Buckley
Parliamentary Commissioner for Administration
April 2002
1 This includes six former Members who referred complaints before the 2001 General Election. Back
2 By the Transfer of Functions (Insurance) Order 1997 (SI 1997/2781). Back
3 By the Deregulation and Contracting Out Act 1994 and by the Contracting Out (Functions in Relation to Insurance) Order 1998 (SI 1998/2842). Back
4 By the terms of section 114 of the Act. Back
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