The Penrose Report Q&As

What has Lord Penrose found?

Lord Penrose's central finding is that "principally, the Society was the author of its own misfortunes."

It was the decisions taken by Equitable Life's management and Board of Directors that led to the financial crisis it experienced in 2001.

He also finds that the regulatory system "failed policyholders in this case" (20/83).

He emphasises, however, that "regulatory system failures were secondary factors", and argues that it was "the system that failed to provide the regulation that changing circumstances in the industry required, not that there was failure to implement what was fundamentally a satisfactory system".

Why is the Government not paying compensation?

While the Government sympathises with all policyholders who have suffered, it cannot underwrite each and every company whose managements and boards make fundamental mistakes and questionable decisions.

There is no case for taxpayer-funded compensation: there has been no finding of misfeasance, negligence or mal-administration on the part of the regulators.

What does it matter if it was a failure of past regulatory policy, surely if the regulatory system failed, policyholders should be compensated?

Governments cannot be held responsible for the policy decisions of past administrations. Governments are held to account for their policy decisions at elections.

The financial regulatory system in place during the 1970s, 1980s and early 1990s was termed "freedom with disclosure". It was, by ministerial decision, deliberately light-touch and reactive, relying on the regulator's assessment of life insurers' statutory solvency returns.

In hindsight, the regulatory system was inadequate and failed to adapt to the changing financial services market. However, the system was a deliberate policy decision by ministers.

How can the Financial Ombudsman's Service help policyholders?

The Financial Ombudsman's Service was established by this Government to deal with individuals' complaints against financial services companies that are not handled satisfactorily by the company in question.

Further details are available at:

What does the Parliamentary Ombudsman do?

The Parliamentary Ombudsman investigates complaints that injustice has been caused by mal-administration on the part of government departments or other public bodies.

Further details are available at:

What should policyholders do next?

The Government cannot provide individual financial advice.

Individual policyholders who are concerned should consult a financial adviser.

Is Equitable insolvent?

The company has stressed that it remains solvent and the regulator, the Financial Services Authority, has no grounds to dispute this.

How can we be confident that this won't happen again?

This Government has radically overhauled the financial services regulatory system since 1997.

Lord Penrose accepts in his report that these reforms reflect "a major, comprehensive reassessment of the requirements of an efficient regulatory system for the insurance sector" and that the FSA's work since 1997 "has sought to anticipate many of the lessons that might be drawn by this inquiry and it should come as no surprise that it has largely succeeded."

In its March 2003 Financial System Stability Assessment for the UK the IMF said that "The [UK's] financial sector is supported by a financial policy framework that has been significantly strengthened in a number of ways in recent years, and that in many respects is at the forefront internationally..... Supervision in the UK is in turn supported by a well-functioning safety net, systemic liquidity, system-level surveillance, and insolvency arrangements and a high quality accounting and disclosure regime."

The Government paid compensation to Barlow Clowes investors who lost money; surely it should do the same for Equitable policyholders.

The two cases are not analogous.

Barlow Clowes had ceased trading; Equitable is still trading.

In the case of Barlow Clowes there was a finding of mal-administration against the then Government; there has been no such finding in the case of Equitable.

At the time of Barlow Clowes there was no compensation scheme in place; there is now the Financial Services Compensation Scheme.

What does the Financial Services Compensation Scheme do?

The FSCS was established to provide a statutory safety net to protect investors.

The FSCS would ensure that policyholders received at least 90% of their guaranteed policy values should a life insurer become insolvent.

However, it is important to remember that Equitable is still trading and the society's management stress that it is solvent.

What are the Society and the regulator doing now?

The current Board of Equitable Life are, together with the FSA, assessing the impact on the Society's liabilities and any risks to policyholders posed by Lord Penrose's findings.

However, the management of the Society stress that Equitable is solvent and that it is in the best interests of policyholders to continue in business as before.

The FSA is working intensively to ensure that all current policyholders are treated fairly.