MEPs to probe government role in Equitable Life crisis

Published on Friday 16 December 2005 01:37

EQUITABLE Life is set to become the subject of a fourth lengthy investigation after the European Parliament decided to launch its own inquiry into the group's near collapse five years ago.

Party leaders in Brussels have agreed to look at the circumstances surrounding the demise of the former mutual - specifically the role played by the UK government. The inquiry follows the Labour-commissioned report by Lord Penrose, another by the parliamentary ombudsman, and a third by the Financial Services Authority (FSA).

The move comes after heavy lobbying by the Equitable Members Action Group, which says the UK reports into the scandal were stacked in favour of the government. The group's general secretary, Paul Braithwaite, said this was a final chance to win justice for investors. "The other inquiries were set up by the British government to be kicked into deep field," he said. "Lord Penrose wrote a very thorough report, but he was precluded from apportioning blame or recommending compensation."

The European Parliament said it must first set up a committee, and would then reconvene in January to discuss its full remit. The investigation will then have to be endorsed by a parliament vote before it can proceed. The body has launched investigations into UK affairs before, including a lengthy inquiry into Labour's handling of the foot-and-mouth crisis four years ago.

Equitable closed its doors to new business in December 2000 after the House of Lords forced it to honour guarantees on policies it sold in the 1970s and 1980s. The decision left the firm with a 1.5 billion pensions black hole, leaving many investors in financial ruin. It sold its ongoing business to Halifax the following year, focusing on staying afloat and honouring existing policies. It then slashed bonuses and imposed high penalty charges on those clients who tried to withdraw their money.

The group administers its policies through a number of closed life funds - currently attractive acquisition targets. Chairman Vanni Treves said two weeks ago that he had received several takeover approaches for all or part of the business.

The European Parliament inquiry comes just months after Equitable Life dropped its court case against auditors Ernst & Young - which it had originally tried to sue for 1.7 million. It has also dropped its claim against 15 former board members it had accused of failing to act early enough to deal with the problems before its collapse.

The FSA commissioned a report to look into its own role in the collapse, but could only examine the period following the regulator's creation at the start of 1999.

Three times a subject

EQUITABLE Life has been the subject of three previous reports into its demise.

The Financial Services Authority was first out the blocks, followed by the highest profile of the three, the Penrose Report. Neither provided any joy for investors - although Penrose was critical of the government's role in the scandal - and the third report - by the parliamentary ombudsman - yielded little further.