MPs have criticised auditors, regulators and Equitable Life's management over events leading up to the UK mutual pension provider's decision to close to new business.
According to the Treasury Select Committee’s interim report on Equitable Life, current auditing arrangements for the regulatory returns of life offices are inadequate. The MPs also criticised Equitable’s then auditors, Ernst & Young, for not reporting the mutual's difficulties in its annual accounts.
Under the Companies Act, accounts should present a true and fair view of the state of affairs of the company as at the end of the financial year, and the profit or loss for the financial year. According to the MPs, Ernst and Young claim that the term true and fair is undefined, and that to them this is for working purposes. This does not mean wholly accurate.
Additionally, government regulators were criticised for not tackling the Equitable’s guaranteed annuities problem earlier. According to the report, MPs are: unclear why the issue of GAR liabilities and reserving was not considered by the prudential insurance regulator at least by 1993, rather than only in 1998.
They also called for the role of regulator since 1993, to be analysed so that regulatory lessons could be learnt; for policyholders to fully understand the history of the mess and for Parliament to scrutinise this topic fully. The Committee will wait for the FSA's report and examine it before deciding on how to proceed.
MPs also expressed concern over changes in prudential supervision, and questioned whether the fact that there had been three different regulators since 1998 contributed to the Equitable fiasco.
Until the end of 1998, responsibility was held by the Department of Trade and Industry. In May 1997, the incoming Government decided that responsibility should be transferred to the proposed new single financial regulator. In anticipation of this transfer, responsibility, including Ministerial responsibility, was moved to the Treasury on 5 January 1998. On 1 January 1999, the FSA became responsible for prudential insurance regulation, although ministerial responsibility continued to rest with the Treasury.
MPs also criticised the Equitable Life's risky decision in 1993 not to build up a reserve to cover the cost of Guaranteed Annuity Rate (GAR) liabilities.
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