7 February '04 - Press Release - New EMAG report: Blistering indictment of the FSA

THE FAILURES OVER THE PERIOD 1999-2003 OF FSA IN PROTECTING THE POLICYHOLDERS OF THE EQUITABLE LIFE.

Because EMAG believes Equitable Life is at the heart of that crisis in confidence, we have just lodged a substantial submission to the Treasury select committee's investigation into "Restoring confidence in long-term savings". The Penrose Inquiry has looked at 50 years up to August 2001 but it was not remitted to look thereafter at the highly suspect CONpromise (as it has became known amongst policyholders) which came six months later in February 2002 with yet more dire consequences.

Paul Braithwaite, general secretary of EMAG, said:

"This new report is a blistering indictment of the FSA's role in actually exacerbating the Equitable Life scandal. It proves that where the FSA's own objectives are in systemic conflict, policyholder interests have consistently been sacrificed. Further, that the FOS is, unhealthily for aggrieved Equitable policyholders, under the thumb of its master the FSA. Redress at the Equitable and a new structure of 'checks and balances' on the FSA are absolute pre-requistes to any restoration of confidence."

Extracts from the new report:

"The FSA:-

• failed to rein in Equitable in 1999 and the first half of 2000 to stop it over-bonusing and raising unrealistic expectations of performance in order to support its marketing effort
• allowed Equitable to remain open after the House of Lords decision, then did nothing to ensure that those who suffered from its decision were compensated
• failed to take any measures to redress the consequences for policyholders without GARs of the House of Lords' decision
• endorsed a flawed compromise settlement which was unfair to policyholders without GARs, especially late joiners
• has allowed Equitable to obfuscate its financial situation, which has adversely affected the interests of people who would have left earlier if the appropriate information had been available
• has, by its silence, allowed the inadequate offer of 5% (to 16,000 late-joiners, post Sept 1998) which Equitable offers former policyholders for mis-selling
• avoided addressing allegations of possible fraudulent misrepresentation to policyholders
• has implicitly by its silence been party to Equitable's policy of enmeshing people in legal finesse which very few people understand, in particular in the presentation of legal opinions

This unsatisfactory performance provides no comfort that people's long-term savings would be protected by the FSA.

It is profoundly unsatisfactory that the FSA is not adequately accountable to either Parliament or to policyholders, and so can behave inappropriately with limited risk of being taken to task.

Recommendations

EMAG recommends that:-

1. The FOS is reconstituted as an entirely separate statutory entity from the FSA.
2. The FSA and the independent FOS are made legally liable to pay compensation when, due to their negligence, consumers of financial services lose some or all of the value of their deposits, investments, or policies.
3. The National Audit Office should be empowered to undertake efficiency studies of the FSA and FOS, and the Parliamentary Ombudsman should be empowered to investigate them for maladministration.
4. The Treasury Select Committee should undertake a study of the behaviour of the Treasury, the FSA, and board of Equitable from the period 1 September 2001, which is after the closing date for Penrose's Inquiry.

An abridged 41 page version of the report has just been cleared for publication, is available to journalists on demand and will be made available, FREE to all on EMAG's website at: www.emag.org.uk

See the attached five page summary file.

For further comment, contact Paul Braithwaite

Notes: The author of this report, EMAG's chairman Alex Henney, is in Australia.

EMAG is awaiting a decision in the High Court on its claim for Judicial Review which seeks to quash the report of the Parliamentary Ombudsman into Equitable Life.