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Last Updated: Monday, 8 March, 2004, 09:01 GMT
Who regulated Equitable Life?
By Sarah Toyne
BBC News Online personal finance reporter

The near-collapse of Equitable Life, the world's oldest mutual insurer, has been one of the biggest financial scandals in recent times. One of the key questions has been over regulation.

The supervision of insurance companies over the last decade has been a complex and, at times, rather confusing affair.

For many years insurance companies that sold long-term investment products were regulated from within government departments: the Department of Trade and Industry and Treasury.

In the late 1990s regulation entered a period of flux, as responsibility transferred from these departments and a number of self-regulating bodies, to the new City regulator, the Financial Services Authority.

BBC News Online offers a step-by-step guide to the regulators.

Department of Trade and Industry (DTI)

Under the Insurance Companies Act 1982 the Department of Trade and Industry (DTI) was responsible for supervising Equitable Life and other insurers until 4 January 1998.

It was also responsible for policy and legislation.

The department within the DTI with immediate responsibility for prudential insurance regulation - ensuring firms were solvent - was known as the Insurance Directorate.

Government Actuary's Department (GAD)

Since 1994, the Government Actuary's Department (GAD) has provided technical support in the regulation of life insurance companies, originally to the Department of Trade and Industry, subsequently with the Treasury and now the Financial Services Authority (FSA).

Actuaries are trained to analyze risks and work out if enough money is being paid into a pension scheme to cover its liabilities.

KEY LEGISLATION
Insurance Companies Act 1982:
The Financial Services Act 1986
Financial Services and Markets Act 2000

It has been GAD's job to scrutinise the regulatory returns of insurance companies, including Equitable Life's.

This government department reports to the Chancellor of the Exchequer, and its department minister is the Financial Secretary to the Treasury.

HM Treasury

As part of preparations to establish a single financial services regulator - namely the FSA - the Treasury became involved in insurance regulation.

The DTI's Insurance Directorate staff were transferred to the Treasury.

From 5 January 1998 until 1 January 1999, the Treasury was directly responsible for the prudential regulation of insurance companies.

From 1 January 1999, it contracted-out the day-to-day supervision to the FSA, but remained ultimately in charge.

It did not shed its regulatory role, until the FSA gained its full powers on 1 December 2001.

Personal Investment Authority (PIA)

Insurance regulation was originally split into two different regimes: prudential regulation - which was concerned with solvency of companies; and conduct of business regulation, which focused on overseeing the marketing and sale of company's products.

Between 1994 and 1 December 2001, when the Financial Services and Market Act 2000 came into force and the FSA gained its full powers, the Personal Investment Authority was partly responsible for the conduct of business regulation.

Financial Services Authority (FSA)

The government announced on 20 May 1997 that it would create a single investment industry regulator, independent from government.

The Financial Services Authority (FSA) would take over the roles of the existing nine sector self-regulating bodies, while gaining new legal enforcement powers to regulate financial markets - and protect consumers.

THE FSA'S LEGAL DUTIES
Maintaining confidence in the financial system
Promoting public understanding of the financial system
Securing the appropriate degree of protection for consumers
Reducing the potential for financial firms to be used for financial crime

On 18 December 1998, as part of the transition arrangements, the Treasury and the Financial Services Authority signed an agreement, which effectively out-sourced regulation to the FSA.

In effect, from 1 January 1999 until 1 December 2001, the FSA took over the day-to-day supervision of life companies.

But the Treasury remained ultimately in charge of the prudential regulation of insurance companies until December 2001, when the FSA gained its full regulatory powers.

The scope and regulatory powers of the FSA is still the responsibility of the government.




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