Equitable Life action group condemns regulators

Equitable life should have been closed down by the regulator a year earlier than it was, according to its policyholders, who are today publishing a new report on the company showing evidence of serious regulatory neglect.

The Equitable Members' Action Group (EMAG) has produced an "Alternative Penrose Report", which it hopes will anticipate the findings of the judge Lord Penrose. He has been investigating events leading up to the society's demise since 2001 and delivered his findings to the Treasury on Tuesday. The EMAG report, carried out by the accountants Burgess Hodgson, uncovered years of major mistakes by the society's management, but also found the society's regulators - the Department of Trade and Industry, the Treasury, the Financial Services Authority and the Government Actuaries Department - were lax. "They took far too long to identify the society's asset deficit and even then did not appreciate its importance," the report said.

The FSA should have closed Equitable down in 1999 when it knew it did not have reserves, EMAG said in response to the report's finding.

The FSA has been exonerated of blame in regulating Equitable by two investigations, one by Ronnie Baird, then head of internal audits at the regulator, and one by the Parliamentary Ombudsman.

Equitable did not close to new business until December 2000, six months after the House of Lords forced it to honour £1.5bn of guarantees to policyholders.

The EMAG report said that had the FSA acted earlier, it could have prevented losses for the thousands of investors who joined after the House of Lords decision.

The report found that Equitable should have begun building reserves for its guaranteed annuity liabilities when it started selling the policies in 1957. By 1988, Equitable was left in a critical situation where almost all of its policyholders held a guaranteed policy that would become very valuable - and costly to the company - should interest rates fall, yet it had no reserves to fund them and refused to start putting money aside. Again, the regulator was censured by the report for failing to step in.

If these points are echoed in the real Penrose report, hopes of suing the Government for compensation may rise. The current board of Equitable has said it will sue the Government should Lord Penrose find evidence of negligence.