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Ruth Kelly: The key conclusion to draw from Lord Penrose's report is not only the one to which my hon. Friends have pointed—

as Lord Penrose says—but that, as he also says:

So policyholders throughout the country, both in the society and in other life assurance societies, as well as in financial services more generally, can be reassured that Lord Penrose himself concludes that the FSA reforms introduced by this Government, which started in 1997, were the ones that have put the regulatory system on to a fair basis and that can address these issues.

Mr. David Ruffley (Bury St. Edmunds) (Con): Although Lord Penrose states that the society was the author of its own misfortunes, he goes on to say:

Does the Minister accept the proposition that a secondary cause can none the less be a significant issue? The fact that a cause is secondary does not mean that it is non-existent. Should not the Government take some responsibility for that secondary cause, which was a failure?

Ruth Kelly: I shall deal with the regulatory system failure in great detail later in my speech. Profound lessons for the House arise from Lord Penrose's report, and I am sure that when the hon. Gentleman reflects on its contents, he will also reflect on his role in these affairs.

Lord Penrose states:

He finds that

He also states:

Lord Penrose notes that there were

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As for the board's non-executive directors, he notes that they

Furthermore, he finds:

He states:

He goes on to describe the board as a

Mr. David Drew (Stroud) (Lab/Co-op): The issue of the role of non-executive directors is not limited only to Equitable Life. We have seen numerous reports on what needs to happen with regard to that role. Are the Government now looking seriously at the matter, not necessarily in terms of legislation or regulation, but to seek to find some arrangement with the City so that we can sort things out once and for all?

Ruth Kelly: My hon. Friend makes a good point. The Department of Trade and Industry recently discussed in the course of preparing the Companies (Audit, Investigations and Community Enterprise) Bill the respective responsibilities that non-executive directors should be expected to have. The Government are actively taking that issue forward.

Lord Penrose describes how the management also failed in its obligations to disclose full information to its own policyholders and to the regulators. He finds that the management of the society fixed on the differential terminal bonus policy as early as 1983, but did not inform policyholders for more than a decade. He says:

Even when the company decided to inform policyholders in 1996, it was done badly. Penrose states:

As for the society's approach to the regulators in that period, Lord Penrose notes that Mr. Ranson, the appointed actuary from 1982, and both chief executive and appointed actuary of the company between 1991 and 1997, was "frequently aggressive" in his dealings with regulators, "dismissive" of regulators' concerns and "obstructive" of scrutiny. The regulatory returns were, Lord Penrose says, "opaque and uncommunicative", and

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Lord Penrose therefore argues that primary responsibility for the society's problems lies with the society and its former management, saying:

Lord Penrose makes it clear that Equitable Life was unique. As I told my hon. Friend the Member for Dumbarton (Mr. McFall), Lord Penrose says:

That unique management approach led to the fundamental weakening of the society, as its inherited estate was run down and ultimately became negative. Nevertheless, Lord Penrose's verdict on the regulatory system is perfectly clear.

Mr. Andrew Love (Edmonton) (Lab/Co-op): Does my hon. Friend agree that the fact that the managing director, who directed the society, was also the appointed auditor led to a clear conflict of interest that should not have arisen?

Ruth Kelly: My hon. Friend is right that a conflict of interest arises in that situation. It is precisely to avoid such a conflict of interest that reforms to the Financial Services Authority have been introduced to remove responsibility from the appointed actuary and place it firmly on the board of insurance companies, where it should properly be.

Mr. Edward Garnier (Harborough) (Con): I declare an interest as a former policyholder with Equitable Life. I still have one school fees policy, for the good that it does me.

The Financial Secretary is giving us a précis of the Penrose report, which we can all read for ourselves, but she has not told us what the Government are going to do, having read the report. Will she do so, and if so, at what stage?

Ruth Kelly: I shall tell the House about the way forward very shortly, but I thought it important to expose the contents of Lord Penrose's report to the House, as he makes some profound comments about the operation of the regulatory regime before the FSA was set up.

Lord Penrose's verdict on the regulatory system is perfectly clear, as he says:

However, he adds:

He clearly states that it was

He makes no allegation of maladministration or negligence against the regulator or individuals, and says:

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Nor does he suggest that any individual regulatory decision led to economic loss by policyholders. Specifically, he notes that

The House should reflect carefully on the lessons that he draws about the nature of the reactive and under-resourced regulatory system in place before 1997 and his key message that the regulatory system must be kept up to date to take account of industry developments. Lord Penrose states:

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