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FSA chair refutes Penrose criticism

Date: Tue, 09 Mar 04 Analysis

The Financial Services Authority has rejected criticism of its operations contained in the official inquiry into the near-collapse of Equitable Life.

Callum McCarthy, chairman of the FSA, today wrote to Ruth Kelly MP, financial secretary to The Treasury, in response to the report by Lord Penrose into the troubles at Equitable.

While reserving most criticism for the management of Equitable, Lord Penrose did conclude that the FSA "failed policyholders in this case".

However, in his letter, Mr McCarthy claimed the FSA had done much to help Equitable Life “in modernising the regime that we inherited and in making the day-to-day supervision of insurance companies more proactive and risk-based'.

Mr McCarthy's letter refutes Lord Penrose's claim that the FSA allowed too high a value to be given to the Equitable reinsurance treaty

The letter also claims that the FSA is attempting to solidify the system of life insurance. Mr McCarthy asserted: "We do not seek to eliminate all risk from the savings industry, but we do believe it essential that companies have the hard financial resources necessary to back the promises they make to their policyholders."

FSA recommendations for the future conduct of the life insurance industry include more realistic accounting and reporting, increasing transparency, the phasing out of reliance on “future profits' and the boosting of resources dedicated to insurance regulation.

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