The Government yesterday took the unexpected step of intervening directly in the Equitable Life crisis by launching its own investigation into why the mutual life assurer has been brought to its knees.
The move surprised observers as for months the Government has said a separate inquiry by the Financial Services Authority was satisfactory to establish whether the society itself, its advisers or regulators were to blame for its forced closure to new business last December.
Dr Vincent Cable, the Liberal Democrat spokesman on trade and industry, said: "Either the FSA has been a complete waste of time or the Government is keen to cover up potentially embarrassing conclusions."
The efficacy of the FSA's own review, which has been completed but not yet circulated to other bodies, has been widely doubted because it has effectively amounted to an investigation into its own actions. The FSA took over from the Department of Trade and Industry as regulator of Equitable in January 1999, since when many of the developments which led to Equitable's downfall took place. Yesterday the FSA said it was only ever intended to carry out a limited inquiry back to January 1999.
The new inquiry, which will be conducted on a non-statutory basis, was commissioned by the Treasury and will be led by Lord Penrose, Scotland's most experienced commercial law judge. The remit for his investigation is wide, stretching back five decades to when the society first started selling guaranteed annuity rate (GAR) policies in the 1950s. Lord Penrose is due to report his findings by the middle of next year.
Ruth Kelly, economic secretary at the Treasury, denied the Penrose inquiry had been launched because the Treasury was unhappy with the FSA's conclusions. "I have not seen the results of the FSA's investigation and I have no insight whatsoever into what it contains," Ms Kelly said.
She said Lord Penrose had been commissioned principally "to consider what lessons can be drawn for the conduct, administration and regulation of the life assurance industry".
She said the announcement came this week so the inquiry could get underway in advance of Equitable's publication of a scheme to cap its GAR liability, which policyholders had hoped the Government would inject public money into. Ms Kelly said the Government considered providing "a lifeboat" but decided it was not the best course of action.
"In announcing the inquiry now, rather than waiting until Parliament resumes at a time when policyholders would be considering the compromise deal, the Government is keen to ensure that there is no confusion between the two," Ms Kelly said.
The compromise scheme, which is expected to be published within the next four weeks, requires GAR policyholders to take a one-off uplift in the value of their polices in return for surrendering their guarantee. Non-GARs must also agree to the deal so Equitable can cap a liability which could otherwise exceed £2.6bn.
The Treasury may still be forced to provide compensation next year if Lord Penrose finds evidence of negligence by regulators. If this happened, it would be the first time the Government compensated individuals for the negligence of regulators since the DTI handed £153m to shareholders of the failed investment company Barlow Clowes in 1989.
Equitable welcomed the inquiry. Charles Thomson, the chief executive, said: "It should mean that what happened at Equitable never happens again. It also gives us clarity as there were some people who still hoped there would be a Government lifeboat."Reuse content