European Parliament - Committee on Petitions

Petition: 303/2006

A paper prepared for consideration by the Committee at its meeting on 16-17 July 2007 and in response to a paper prepared by the European Commission.

Under EU law the UK has a duty to protect the interests of consumers. This duty means ensuring that consumers are properly informed of matters that are likely to have a significant financial impact on them, such as, for instance, matters affecting the value of their investments or pensions. On this basis, if the relevant authority in the UK (which is the FSA in this case) becomes aware of a matter which could or is likely to have such an impact, then that authority has a legal duty to ensure that the matter is properly disclosed to consumers, particularly if disclosure would give consumers an opportunity to take steps (individually or otherwise) to protect their financial interests (by switching an investment elsewhere for instance). It would clearly be unacceptable for the FSA to become aware of such a matter and to deliberately conceal it from consumers, thus denying consumers the chance to protect their own financial positions in the way they consider most appropriate.

Given that the FSA knew of the existence of Scottish Widows' GBP1.5 billion GAR liability at the relevant time, it is clear that the FSA KNOWINGLY AND DELIBERATELY failed to ensure that Scottish Widows policyholders were informed of the existence of that liability during the demutualisation process in 1999/2000, which disclosure should have been made (under section 49 of the Insurance Companies Act 1982) in the circular sent to policyholders by Scottish Widows dated 19th November 1999. This is not only a breach of EU consumer protection law but is a criminal offence under section 71 of the Insurance Companies Act 1982, both on the part of Scottish Widows and the FSA itself.

I believe that the FSA acted in this way because they were attempting to preserve market confidence. To put it in plain language, if a second 'Equitable Life crisis' had arisen (but in relation to Scottish Widows of course), this might have led to a collapse of the life insurance industry in the UK, particularly when it became apparent, as it was bound to do, that all the major life companies in the UK had been selling GAR policies and that they had, as a result, GAR liabilities of an extent comparable to or greater than those of Equitable Life and Scottish Widows. For these reasons, a deliberate and conscious decision was made not to inform the policyholders of the life insurance companies (note the plural) in the UK of the true extent and nature of the GAR problem, amounting to an estimated GBP14 billion (Daily Telegraph article 21 July 2000). In short, the FSA deliberately left millions of UK (and EU) policyholders in the dark. The actions of the FSA therefore FORCED millions of policyholders of UK life companies to bail out those companies from a financial problem which was certainly not their fault or responsibility and which arguably arose from the failure of the FSA and the UK government to regulate the life industry in the first place.

The key question for the Committee to consider is whether the actions of the FSA (and the UK government), which were designed to protect market confidence, were consistent with their legal duty under EU law to protect consumer interests. In short, is it true that, in such circumstances, 'protecting the consumer' means, under EU law, concealing information from them so that they are denied a). the opportunity to make individual decisions as to how they might deal with the situation in the light of their particular circumstances and b). the opportunity to seek legal redress in respect of the failures of the regulatory authorities which allowed the circumstances to arise in the first place. There must be at least a suspicion, which only an enquiry will remove, that the FSA (and the UK government) acted as they did in order to prevent consumers from seeking redress from them. It is important to bear in mind that non-UK policyholders (i.e. other EU citizens) were denied the chance of a remedy as well, and the Committee has a duty to them.

The Committee should note that the first statutory objective of the FSA ( is 'market confidence' and that 'consumer protection' is third. This means that the UK government has set an objective for the authority responsible for consumer protection in the UK which OVERRIDES EU LAW on consumer protection where a conflict between market confidence and consumer protection arises. To put it another way, the UK government has determined that the interests of the market will always override the interests of the consumer. The EU needs to establish whether this is permitted under EU law.

The Notice to Members dated 25th January 2007 implies that the subject matter of my petition (the FSA's failures with respect to the Scottish Widows demutualisation) falls within the scope of both the EP's Committee of Enquiry into Equitable Life and the similar enquiry by the the UK's Parliamentary Ombudsman. This is untrue in both cases. Mairead McGuinness, the Chairwoman of the EP Committee of Enquiry, has confirmed directly to me in person and in writing (E-Mail dated 9th May 2007) that she considers the Scottish Widows demutualisation to be outside the scope of the EP Equitable Life enquiry. Her Committee not only refused to consider my evidence, they even refused to list it as evidence received. With regard to the UK's Parliamentary Ombudsman, I am in the process of submitting evidence to them. The Ombudsman's office have made it quite clear that my complaint will not be dealt with as part of their enquiry into Equitable Life. It is therefore quite incorrect to claim that the conduct of the FSA in relation to the Scottish Widows demutualisation has been looked at by either enquiry. In fact, the opposite is true; both enquiries are merely dealing with the a GBP1.5 billion tip of a GBP14 billion iceberg (and now they both know it).

The Notice to Members dated 25th January 2007 states that it is possible to argue that it was prudent of Scottish Widows to set aside the GBP1.5 billion in the Additional Account in order to meet potential GAR liabilities. The point here is that what is prudent is not necessarily legal (under either EU or UK law). It may be 'prudent' for a bank robber to invest his ill-gotten gains in a pension, it may be 'prudent' for a doctor to kill a terminally ill patient and it may be 'prudent' for a general to surrender without a fight. The prudence argument amounts to saying that THE END JUSTIFIES THE MEANS; in other words, it is to argue that Scottish Widows were right to ignore EU and UK law in what they perceived to be the interests of the company. It is remarkable that the European Commission should even consider that such an argument might be supportable.

The Notice to Members dated 25th January 2007 states that 'a large part of the Petition document relates to the harassment of which the Petitioner believes he has been a victim as a result of his whistle-blowing and to the failure of numerous bodies and authorities to respond to his complaints'. This is untrue. The supporting evidence which I submitted deals with the question of harassment (because it was originally prepared for a different purpose) but my petition does not. The issue of harassment is irrelevant in the present context.