There were more than 1,500,000 members of Equitable Life at the time it was forced to close to new business in December 2000. Over the last eight years many of those members and their families have suffered great anxiety as policy values were cut and pension payments reduced. Many are no longer alive, and will be unable to benefit personally from any compensation. We share both a deep sense of frustration and continuing outrage that the situation has remained unresolved for so long.
We congratulate the Ombudsman on her comprehensive and compelling report, which paints a damning picture of the prudential regulation of Equitable Life throughout the 1990's and early 2000's. In short, the members of Equitable Life were seriously let down by the Financial Services Authority, the (then) Department of Trade and Industry, and the Government Actuary's Department. We support her recommendation for a full and unreserved apology from those public bodies concerned.
This Report contains our views on the Ombudsman's main conclusions and recommendations. We have decided to publish it as speedily as possible, so that debate on the Government's response to the Ombudsmanand possibly even the response itself, which is imminentcan be informed by our views. We will return to these issues in the New Year if we need to. We look forward to the publication within the next few days of a what we trust will be a thorough and well-reasoned response.
The Government should, without further delay, accept the Ombudsman's findings of maladministration. We support the Ombudsman's recommendation for a full and unreserved apology from those public bodies concerned. There are valid arguments to be had about the means of providing redress, but we would be deeply concerned if the Government chose to act as judge on its own behalf by refusing to accept that maladministration took place. This would seriously undermine the Ombudsman's office and the ability to learn lessons from the Equitable Life affair. If it were to happen, there should be a debate on the floor of the House to allow Members to discuss these constitutional issues and re-establish the Parliamentary Commissioner's role.
We also strongly support the Ombudsman's recommendation for the creation of a compensation scheme to pay for the loss that has been suffered by Equitable Life's members as a result of maladministration. Where regulators have been shown to fail so thoroughly, compensation should be a duty, not a matter of choice. However, like the Ombudsman, we are acutely aware of the substantial sums of money involved.
The decision to compensate must not be the equivalent of signing a blank cheque on taxpayers' behalf. While the aim should be to restore individuals to the position they would have been in had maladministration not occurred, it is essential that the public purse benefits from an appropriate measure of protection. In particular, the emphasis must be upon compensating individuals only for that loss that is fairly attributable to regulatory failure. Not all policyholders suffered loss as a result of regulatory failure; this should not be a case of compensation for all. Rather, it should be a case of the State making good its own serious failure.
We endorse the Ombudsman's proposal for a compensation scheme that is independent, transparent and simple, administered by a tribunal. There is an inherent tension between speed and accuracy in the way that a compensation scheme can measure loss. Despite the basic presumption that loss must be accurately assessed, the main priority must be prompt redress. Policyholders have already been waiting for almost a decade and substantial numbers have either died or are advancing in years. Justice further delayed will mean justice denied to even more people. The personal circumstances of many policyholders will make it difficult for them to engage with a complex claims procedure. The compensation scheme should therefore avoid placing a burden on individual policyholders wherever this is possible.
We are not in a position to gauge whether the Ombudsman's two year timetable to implement the compensation scheme is viable. There is, however, a grave danger that any further delay will turn the last decade of regulatory failure into this decade's even greater failure to provide adequate redress. Regulation is never an easy job and mistakes, even serious ones, will occasionally be made, but the real test for government is how it then responds. In this case the Government must treat the smooth and rapid progress of the compensation scheme as a matter of high priority. We intend to monitor progress carefully.
It would not be appropriate to compensate only those policyholders and annuitants who are experiencing financial hardship; the payment of compensation is not a matter of charity but a requirement of justice to redress a wrong. However, priority or interim payments should be made to individuals suffering hardship.
The "central story" of the Ombudsman's investigation is the failure of regulators to exercise their powers to ensure that a company with a sound reputation was in fact observing minimum standards. The Government should take this opportunity to learn lessons from the criticisms that have been (and continue to be) levelled against the regulators. We also draw other lessons from this story, including the need to reflect on whether the Financial Services Authority and key regulators more widely are sufficiently and coherently accountable, and on whether it should have been possible to hold the former directors and advisors of Equitable Life more effectively to account for losses for which they were found to be principally to blame.
Having failed to establish a comprehensive and fit for purpose investigation into the Equitable Life affair, the Government must review the way in which serious failures of this kind are investigated in the future. In the meantime, the Government has reason to apologise for the delay and frustration caused by its piecemeal approach.