FSA concludes regulatory action to protect Eurolife policyholders

Regulatory action was also taken against the directors of EAC.

The FSA took this action on account of its concerns that the business of EAC was not being soundly and prudently managed.

EAC and its directors disputed the actions and referred them to the Financial Services and Markets Tribunal. Immediately prior to the hearing, EAC, the directors and the FSA agreed a basis on which to settle the dispute. As part of the resolution, the managing director of EAC, Mr David Wootton, has resigned from the board and has agreed not to seek a senior management role in the financial services industry in the UK. Mrs Lynne Green has resigned as chairman of the board. She will continue as a director of EAC but has undertaken not to apply for authorisation to perform a chief executive function in an authorised firm for three years. The other members of the board continue as directors and the regulatory action against them has been discontinued.

EAC has agreed to appoint a new managing director (whose appointment will be subject to normal FSA approval). The requirement to hold assets in trust will continue until this appointment takes place. Lifting the restriction on writing new business will, in addition, be subject to the appointment of an independent non-executive director, who will chair the board.

Figures supplied monthly to the FSA show EAC remains solvent.

Carol Sergeant, FSA managing director, said:

This action demonstrates very clearly that the FSA will hold the senior management of regulated firms personally accountable for the way they run their businesses.

Notes for editors

1. Background to and Details of the FSAs Actions

   On 29 November 2001 the FSA issued a Supervisory Notice to EAC under section 53(4) of the Financial Services and Markets Act 2000 (FSMA). EAC disputed the FSAs actions and referred the Supervisory Notice to the Financial Services and Markets Tribunal. On 29 April 2002 the FSA issued Decision Notices to Mr Wootton and Mrs Green. Mr Wootton and Mrs Green also disputed the FSAs actions and referred the Decision Notice to the Tribunal. The actions in this statement have been agreed between the FSA, EAC and Mr Wootton and Mrs Green and dispose of the references to the Tribunal.

   (a) Withdrawal of authorisation to conduct new investment business

   On 8 June 2000 HM Treasury appointed investigators pursuant to its powers under section 43A of the Insurance Companies Act 1982 (ICA) to investigate whether the criteria of sound and prudent management under the ICA had been fulfilled with respect to EAC.

   The HMT investigators reported on 23 July 2001 and concluded that the criteria of sound and prudent management had not been fulfilled by EAC. On 24 August 2001 the FSA served on EAC a notice under section 12A of the ICA directing that EAC ceased to be authorised to effect contracts of insurance (EAC had in fact ceased writing new contracts for the time being in June 2000).

   That notice continued until 1 December 2001 when the relevant provisions of the ICA were replaced by provisions of the FSMA. Accordingly, on 29 November 2001 the FSA issued the Supervisory Notice to be effective at 1 December 2001 restricting the business of EAC to the same extent as the section 12A ICA notice. The prohibition on EAC writing new insurance business will continue until EAC either appoints a new managing director or is sold.

   (b) Assets to be held in trust

   In the light of the conclusion by the HMT investigators and the FSAs view that EAC did not fulfil the criteria of sound and prudent management, the FSA decided to serve notices on EAC: (i) under section 39 of the ICA directing that assets of EAC equivalent to its EC liabilities to its policyholders be maintained in the EC; and

   (ii) under section 40 of the ICA requiring a trustee to be appointed to administer the trust in which those assets would be held.

   As with the provisions under section 12A of the ICA, equivalent arrangements under FSMA were put in place under the Supervisory Notice of 29 November 2001 with effect from 1 December 2001.

2. The Financial Services and Markets Tribunal

   The Financial Services and Markets Tribunal came into force at N2, replacing the tribunals of the previous financial regulators, such as the Personal Investment Authority, Investment Management Regulatory Organisation and the Securities and Futures Authority, and the statutory tribunals with responsibility for banks, building societies and friendly societies. Appointments to the Tribunal are made by the Lord Chancellor.

   Firms and certain individuals employed in businesses regulated by the FSA are able to ask the independent Tribunal to consider an FSA decision affecting them. In addition, anyone against whom the FSA brings proceedings under its powers for tackling market abuse can have their case determined by the Tribunal. The Tribunal will usually comprise a chairman and two lay members selected on the strength of their standing and credibility in the financial services industry. It will consider anew the evidence on which the original FSA decision was based and any further evidence. It will then give directions to the FSA on what action, if any, should be taken. Where appropriate, it will substitute its own decision for that of the FSA. Its decisions are binding. Appeals to the Court of Appeal or, in Scotland, to the Court of Session against decisions of the Tribunal are only permissible on points of law.

   The Tribunal will normally hold its hearings in public but has the discretion to hold a hearing in private if it considers it appropriate. EAC applied to have its reference heard in private. The Tribunal rejected the application, the first time it has had to rule on this issue. The Decision is available from the Tribunal and on the Lord Chancellors Department website at:

   http://www.financeandtaxtribunals.gov.uk/decisions/seldecisions/decision/eurolife.htm

3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000; maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.