Investment Markets » Banking and Finance
Who Should Pay For Equitable Life?
The Ombudsman says the Government owes policyholders £4bn, but should it really be up to the taxpayer to pick up the tab?
"Are we nearly there yet?" is a phrase guaranteed to torment many parents over the coming weeks. It is also the plaintive cry of Equitable Life's long-suffering policyholders. Eight years after the mutual insurer's near-collapse, the Ombudsman has finally delivered a damning report which accuses the Government's financial watchdogs of maladministration and, theoretically, paves the way for up to £4bn in compensation claims.
So when's the cash coming? A million policyholders are understandable impatient; some 30,000 have already died without recompense. But they will have to wait until after Alistair Darling's holiday to find out and, even then, the Treasury may refuse to cough up.
No one can accuse the Ombudsman, Ann Abraham, of shirking her duty. Her 2,200-page report – which reverses an earlier 2004 inquiry exonerating the Financial Services Authority – finds the Government guilty on ten counts of maladministration. The main thrust of her argument is that the FSA allowed Equitable Life to remain open for new business when it was clearly unsound.
The killer line mentions "similarities" with Northern Rock, and they are compelling. Bad regulation cannot be dismissed as a slice of bad luck and, one way or another the Government should find the cash. This farce has run on too long – it deserves the right ending.
You might expect Gordon Brown to agree. He made his name, after all, in the Eighties campaigning for the victims of Barlow Clowes. Brown might have argued then that there are wider issues of confidence at stake if savers cannot trust the system. Don't expect to hear that now.
The sight of the Government wriggling off the hook is unedifying. But if the taxpayer was held accountable in every case of regulatory failure, there's no knowing where it would end. There is a fine line between maladministration and misjudgement, and while the authorities were partly culpable, Equitable Life itself caused most of the losses.
The charitable case for compensation is non-existent: investors did not lose everything and are not living in poverty. The legal case remains uncertain. A regulator must be shown to have behaved with malice or impropriety for a compensation case to have a chance; serial regulatory failure is not enough.
Abraham can wave her wand, but real life just isn't equitable, and investors should not expect a happy ending.
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