Out-Law News 3 min. read
08 May 2009, 5:59 pm
In a report submitted to both Houses of Parliament this week, the Ombudsman said she was "entirely unpersuaded" by the basis on which the Government dismissed many of the conclusions reached in her July 2008 paper Equitable Life: a decade of regulatory failure.
"The Government’s response to my report was deeply disappointing," she said. "It provided insufficient support for the rejection of my findings of maladministration and injustice. It also begged a rather larger question as to what the purpose of regulation was supposed to be."
The Ombudsman's most recent report, Injustice unremedied, has been drawn up under a special provision in the Parliamentary Commissioner Act that enables her to notify Parliament if it appears that injustice caused by maladministration has not been and will not be remedied.
In the 40 years since the office of Parliamentary Ombudsman was established, only four such reports have been laid before Parliament.
"Whether the response of the Government to my report is adequate or whether instead it constitutes an inappropriate attempt to act as judge and jury in its own cause is now a matter for Parliament to consider and debate," she concludes.
Equitable Life, the UK's oldest mutual life assurance company, closed its doors to new business in December 2000 and over the following months drastically reduced bonuses for all policyholders. Over a million policyholders are believed to have been affected, suffering losses estimated at more than £4 billion.
Last year, following "perhaps the most complex investigation ever undertaken by my office", the Ombudsman made 10 findings of maladministration on the part of regulators responsible for supervising the company, resulting in five instances of injustice to Equitable Life policyholders.
Injustice in some cases took the form of financial loss. Policyholders also lost opportunities to make informed savings and investment decisions and were left with a "justifiable sense of outrage".
The report recommended that the public bodies concerned apologise for the "serial regulatory failure" that had occurred and that the Government set up an independent compensation scheme to assess individual policyholder's claims.
In its response, the Government accepted four instances of potential injustice resulting from maladministration and apologised for those failings. But in most cases, the acceptance was limited in scope and other findings were rejected in their entirety.
The Government also rejected the idea of an independent compensation fund. Instead it proposed an alternative scheme that would make discretionary payments to individuals who had suffered a "disproportionate impact" attributable to those instances of maladministration it accepts took place.
Sir John Chadwick, a former Lord Justice of the Court of Appeal, has been retained to advise the Government on the scheme and identify those losses attributable to maladministration, as opposed to losses caused by market conditions or the actions of Equitable Life itself.
In her new report, the Ombudsman criticises the Government for breaking the link between injustice resulting from maladministration and the provision of any remedy.
"The Government [has] asserted that financial regulation is a special case and that it is never appropriate for financial compensation to follow directly from regulatory failure constituting maladministration, regardless of the consequences for individual citizens of that failure," she states.
"The Government' alternative proposals ... proceed on an approach which does not accept the moral or any other imperative to provide an effective remedy for wrongs committed in the course of financial regulation."
The report points out that no detailed timetable has been announced for the discretionary scheme or any ground rules for defining what constitutes the "disproportionate impact" that will govern policyholders' eligibility to claim.
The Ombudsman concludes:
"Whatever the outcome of the work to be done by Sir John, it is clear that not everyone who has suffered injustice will be eligible for a payment and that not all of the injustice suffered will be put right. The injustice I identified in my report will not therefore be remedied as a result of the Government’s response."
The Government's stance on Equitable Life is also the subject of an application for judicial review issued in April by the Equitable Members Action Group.
The Ombudsman says it is not her present intention to take an active part in the proceedings, but she reserves her right to do so if she considers it appropriate.