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The EP inquiry was set up in January 2006 in response to two petitions received by Parliament from policyholders who were among the victims of the financial debacle at the Equitable Life Assurance Society (ELAS) that inflicted major losses on over a million people, mainly in Britain but also in other countries, including Ireland and Germany.
The committee has been looking into the role of UK government and regulators in implementing EU insurance law and that of the European Commission in monitoring the implementation of such law. Two key issues are in the spotlight: the plight of the policyholders and the implications for the European single market in financial services.
Today's draft report, authored by Diana Wallis (ALDE, UK), still has to be put to the vote by the committee on 8 May and subsequently approved by the full Parliament. Some Members today announced their intention of tabling amendments to the report before the committee vote.
In her draft report Diana Wallis argues that the UK’s technique of implementing EU insurance legislation in a piecemeal fashion (through a number of different legal acts) “lacks clarity” and that 'the implementation process as a whole was flawed”.
The UK regulatory system (including such bodies as the Financial Services Authority, the Treasury and the Department of Trade and Industry) is severely criticised, notably for its “excessive leniency” towards Equitable’s solvency margins. This is attributed partly to Britain’s “light touch” regulatory policy, which the rapporteur says 'went one step too far and contributed to the creation of a weak regulatory environment, which allowed the difficulties at ELAS to grow unchecked'. Another factor was the regulators' “undue ‘awe’ or ‘deference’” towards the company, because of the latter's solid reputation. They also failed to challenge the “potential conflict of interests” in the fact that Equitable’s Appointed Actuary was simultaneously its Chief Executive. Overall, the draft report challenges the Penrose report’s view that “regulatory system failures were secondary factors”.
Many victims of the crisis “had great difficulty in knowing what route to take or who to apply to in trying to make a complaint and obtain redress”, says the draft report. The result was “a pattern of confusion and much inequality of treatment”. Taking Equitable to court was an option available to “only a few affluent policyholders”, while ombudsman schemes, such as the UK's Financial Ombudsman Service, proved ineffective.
Non-UK policyholders, such as those in Ireland and Germany, suffered from uncertainty over which regulatory bodies were responsible. Was it those in the “home state” (the company’s country of origin) or the “host state” (the country where it sold its policies)? Too often, home and host state authorities were able “to shift responsibility from one to another for dealing with complaints” and this led to non-UK policyholders 'falling between two stools'. Diana Wallis' draft report stresses that this lack of clarity is a problem not just for the Equitable Life victims but also, more broadly, for business and consumer protection in a Europe-wide single market.
The EP committee cannot force the payment of compensation. However, the draft report argues that, in view of its 'failure to comply' with EU legislation and in the absence of any real possibility of redress for the victims, 'the UK Government is under an obligation to assume responsibility'. It therefore 'strongly recommends that the UK Government devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders both within the UK and abroad'. It also “urges the UK Government to accept and implement any recommendations the UK Parliamentary Ombudsman may make' in her second report on Equitable Life, which is due to be published soon.
Looking at the broader issues, the draft report points to 'the need to foster consumer confidence in pension products' and hence requests that 'any financial services legislation duly recognizes the priority of investor protection issues' while at the same time minimizing red tape and not stifling innovation.
The report also calls for EU legislation to give consumers “clearly defined rights which can be relied on before national courts” and for better alternative dispute resolution schemes throughout the EU. In short, if business is to get the benefit of the single market, consumers must have clear rights too. Companies must be told 'there is ‘no mobility without liability’'.
The European Commission, says the draft report, did not monitor the application of the EU insurance legislation effectively, although it may have followed the prevailing practice at that time. In future it should be “more proactive” on this front, for which purpose it would need more resources. The standing committees of the European Parliament, too, should play a more active role in monitoring the implementation of legislation in their own policy areas.
Lastly, the draft report voices disappointment 'that several witnesses have not adequately cooperated with the Inquiry'. It therefore calls for broader powers for EP committees of inquiry regarding witnesses, collaboration of Member States' authorities and investigative powers.
Vote in Committee will be 8 May, Plenary vote in June