Government regulators will be severely criticised in a report by the parliamentary ombudsman on the Equitable Life fiasco. The report by Ann Abraham, to be published next week after a long delay, will open the way to compensation claims worth billions of pounds.

More than a million customers lost up to half of their pensions and savings when Equitable Life, the world’s oldest insurance company, almost collapsed eight years ago. The ombudsman lays the blame squarely on the regulators.

Equitable Life was forced to close its doors to new business after it admitted that it had claimed customers' investments were worth £3bn more than the company's total assets. As a result the insurer slashed the value of customers' policies.

The Daily Telegraph, which has seen a draft of the report, says it blames the Treasury for failing to regulate the firm properly. The Financial Services Authority and the Government Actuary's Department could also be criticised in the final version for failing to exercise their regulatory functions adequately.

It seems highly likely that Equitable policyholders, through the Equitable Members Action Group (Emag), will demand compensation for their losses from the Government. They calculate the losses at £4bn, as a result of regulatory negligence.

Emag hopes Ms Abraham will recommend that the Government compensates members for what it calls "the appalling failures by a succession of regulators".

As the Government has already used public money to keep Northern Rock in business, the case for paying compensation to Equitable Life members from public funds would be very powerful.

Publication of the ombudsman’s report, which should have appeared in 2005, has been delayed three times - on one occasion after the Government bodies under investigation demanded "substantial representations".
 
There have been several previous reports on Equitable’s collapse. In 2004, the Penrose report criticised Government regulation of the firm, but blamed a management culture of "concealment" and "manipulation" as well as over-reliance on its actuaries, for what happened.

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