City watchdog faces negligence case

More than 20,000 people had claims outstanding in June

Creditors of the failed insurance firm Independent Insurance are planning to sue the Financial Services Authority for negligence, reports have said.

Independent Insurance collapsed in June 2001 with "unquantifiable" losses resulting from claims that had not been entered into its accounting systems.

A negligence lawsuit would be the first lodged against the Financial Services Authority (FSA), the one-stop City "super-watchdog", which gained full powers earlier this month.

While British law protects the FSA, from damages claims, the creditors action group believes European law offers a fresh way to bring a case.

"We have got round this statutory immunity for negligence," said Stephen Alexander of Class Law, a firm which is representing the creditors.

European challenge

The British law protecting the FSA from prosecution is "clearly contrary to European Union directives", Mr Alexander told The Daily Telegraph newspaper.

"Under European insurance law you are entitled to sue the regulator if they fail in their duty. We believe they have."

Any case is likely to hinge on what the FSA was told by its French counterpart and whether it responded correctly to that information.

"Failing to act on the French regulator's warning, we would say is negligence," Mr Alexander said.

'No tip-off'

The FSA has previously denied that it failed to act on a report about a sister company sent by France's Commission de Controle des Assurances (CCA) in January 2001.

The FSA said information provided by the French authorities nine months before Independent went into liquidation "added nothing to what we already knew about the UK company".

"Suggestions that we failed to act on a tip-off are incorrect," the FSA said.

Investigation

Mr Alexander said the creditors expect to file a suit in the High Court in London in January.

"If action is eventually forthcoming, we will vigorously defend ourselves", the FSA told the Financial Times.

The FSA launched its own inquiry into the collapse of Independent Insurance in the summer.

The issue is also being investigated by the UK's Serious Fraud Office.