Government departments responsible for UK financial services regulation and the subsequent Equitable Life crisis were deemed "superficial" and "inconsistent" into their handling of the mutual society's financial affairs, according to Lord Penrose's report.
That said, they will NOT have to pay out compensation to the one million policyholders affected by the crisis, as the Penrose report published yesterday puts the majority of the blame on the company's former senior executives and a weak board.
While lashing out at Equitable Life's then appointed actuary and chief executive, Roy Ranson, Lord Penrose also pointed a finger at regulatory failures, condemning the Treasury, Department of Trade and Industry (DTI) and the Government Actuary's Department (GAD) for failing to spot the problems and for being able to do anything about it.
He believes the regulatory bodies should have known better than to rely too much on Ranson, as his role as both chief executive between the period from 1991 to 1997 and appointed actuary landed him in a position where there was a potential for conflict of interest.
Lord Penrose says: "Despite the obvious dangers inherent in such a concentration of authority and influence [...] no steps were taken effectively to prevent it from coming out."
He also critices the DTI and GAD, stating in particular the DTI's insurance division was too "ill-equipped" to even take part of the regulatory process, leaving the latter - which he describes as at the time being "often inhibited by their understanding of what was acceptable within broad and ill-defined standards of practice" - in charge of the actuarial functioning of life offices until the birth of the FSA.
He then goes on to say: "Although GAD brought in a more detailed style of scrutiny in the early 1990s, the standards of scrutiny still impress me as complacement, lacking challenge, and hesitant in criticism and in following up on any criticism made."
Furthermore, he attacks the GAD and regulators for not altering their approach to the Society in December 1994 when they became aware the company's financial position was weak and there was a need for caution in the examination of Equitable Life and further supervision.
Responding to concerns about the regulator's actions, the Financial Services Authority washes its hands of blame, referring to the Baird report published in October 2001, which deemed "the die was cast" for existing policyholders by the time the FSA took over as City watchdog.
At the same time, however, Lord Penrose specifically accuses the FSA of not properly exploring all the options available to protect new policyholders when it allowed Equitable Life to put itself up for sale.
The FSA says: "We still, however, think that we reached the right decision in this case. The prospective benefit to its one million existing policyholders of a sale of the Equitable was bound to outweigh the prospective detriment to the 6,000 new policyholders who joined after the House of Lords verdict."IFAonline
Duo start roles on 1 October
Where true value lies
Economy to thrive despite global risks
Behaviours, animals or something else?