Watchdog 'failed over Equitable'

CITY watchdog Sir Howard Davies was accused by MPs investigating the Equitable Life affair of regulatory failure which should lead to the compensation of investors.

Davies, appearing before the Commons Treasury Select Committee for the third time in a month, was challenged by Labour member Jim Cousins over allowing Equitable Life to continue to advertise for new business when the Financial Services Authority, which Davies heads, had serious misgivings over its future solvency.

'I would put it to you that you failed as a conduct-of-business regulator,' said Cousins. 'Do you not have a contractual duty to ensure that material going out is fair, clear and not misleading?'

David Laws, a Liberal Democrat member and former City investment banker, said: 'Despite serious concerns over solvency, despite question marks over taking on new investors and the risks they faced, you took no interest in what the company was putting out. The company was in a parlous state yet you did not lift a finger to warn new investors. There seems to be an obvious case for compensation for regulatory failure.'

Equitable Life found itself in financial straits after failing to cover the liability of paying out expensive guaranteed annuities to some policyholders.

Davies replied: 'You cannot take a decision that a company can stay in business but then advise people not to do business with them. We stand by our decision.'

Committee chairman John McFall argued that if Davies did not agree he was 'impotent' in preventing the problems at Equitable Life, he had been 'naive' in his relationship with the company's directors.