Gordon Brown has been told to pay up and say sorry to the victims of the Equitable Life scandal following "a decade of regulatory failure."
In her report, Ann Abraham, the Parliamentary Ombudsman, urges the Government to apologise to Equitable Life policyholders and set up a fund to compensate them for their financial losses.Equitable Life: a decade of regulatory failure
identifies 10 instances of maladministration by the Department of Trade and Industry, the Government Actuary's Department, and the Financial Services Authority – the departments and watchdogs that were supposed to be protecting Equitable Life's customers.
In the report, which analyses only the Government bodies overseeing Equitable Life's practices and not the firm itself, Ms Abraham said she has found evidence of "serial regularity failure" calling on the Government to apologise to policyholders and set up a fund to compensate them for the 'injustice" they had suffered.
Equitable Life was founded in 1762 and is the world's oldest mutual insurer. During the past century, the firm enjoyed impressive returns and became the pension
provider for the middle classes.
But, in the 1990s, while Equitable Life was paying competitive bonuses to its customers, it was failing to put any cash aside for the future. Regulators failed to intervene and the firm's model collapsed.
During the period before 1998, says the report, regulators failed to verify the financial positions of Equitable Life, despite the fact they were duty bound to do so, failed to spot the problems that would eventually lead to its downfall and "permitted misleading information" to be provided to policyholders.
Equitable Life closed to new business in 2000 and in 2004, The Penrose Report concluded that even though the regulatory system had failed, Equitable Life was the "author of its own misfortunes".
Around a million people saw their pension values cut and many have long campaigned for an official payout from the Government. But, based on the 2004 report, the treasury has insisted that it is Equitable Life that is accountable not the Government, and has refused. It is thought that the chancellor, Alistair Darling, will defend this viewpoint, arguing that he cannot be held liable for the money investors lost, but with the strength of Ms Abraham's report – which she has been working on for the past four years - a European report with the same findings combined with the fact that Northern Rock customers have already been bailed, the pressure is really on.
If the Government is forced to compensate those Equitable Life policyholders that have lost out, they could be looking at a payout of around £4.5billion. However, the Ombudsman has suggested that such a scheme should be established within six months of any decision by the Government; however, if it does go ahead, it has also been recommended that it is completed within two years.
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