Ernst & Young fine for Equitable life failings is slashed

The company and its client service partner Kevin McNamara were also reprimanded by the accountancy profession's appeal tribunal.

But the outcome is considerably better than the initial fine of 4.2m and costs of 5.75m that were imposed on Ernst & Young by the Accountants' Joint Disciplinary Tribunal (JDT), which the group appealed against.

The JDT had also severely reprimanded E&Y and McNamara.

But the announcement will not help beleaguered policyholders in the society, waiting for compensation from the UK government.

The sanctions relate to the guaranteed annuity rate policies offered by Equitable up to 1988, which brought it to its knees.

The policies, which guaranteed to pay a pension at a fixed rate, were easy to fund when interest rates were higher than the guarantees, but they became expensive to offer when interest rates dropped below this level.

Equitable tried to get around the problem by reducing the discretionary bonus it paid on the policies, leading to a test case that Equitable lost in the House of Lords. The society also failed to hold the reserves it needed to meet the guarantees.

Once the group lost the test case, it put itself up for sale, and later closed to new business when no buyer could be found.

It also cut the final bonuses policyholders received to zero between 1 January 2000 and 31 July 2001, reduced the value of all policies by 16 per cent, and imposed a 12 per cent penalty on anyone who tried to move their investment away from the society before it matured.

The JDT found that E&Y and McNamara should have warned policyholders about the consequences of losing the test case in 1998 and 1999.

It said they should also have highlighted that the company's 1999 financial statements did not show a true and fair view of the society because of the inadequate provision it had made.

With-profits policyholders invested 2.7 billion in Equitable in 1999, and a further 2bn up to 8 December 2000, when it closed to new business.