EY and Equitable Life Assurance Society
London 4 June 2010: EY welcomes today’s judgment by the Joint Disciplinary Scheme’s Appeal Tribunal (Appeal Tribunal) in overturning all findings relating to objectivity and independence for our work on the audits of the Equitable Life Assurance Society.
This is the culmination of a seven year process by our regulator. The allegations that we lacked objectivity and independence were acknowledged by all parties as "by far the most serious" that we faced – the rejection of these findings by the Appeal Tribunal led to their decision to significantly reduce our fine (by more than 90%).
All complaints against us for 8 of the 11 audit years, from 1990 – 2000, were struck out by the Joint Disciplinary Tribunal (JDT). We are nonetheless disappointed by the remaining adverse findings of the JDT in relation to aspects of the audit for the financial years 1997-1999.
The Joint Disciplinary Scheme (JDS) investigation is completely separate from the high profile civil litigation that Equitable mounted, and subsequently lost, against EY in 2005.
We extend our sympathies to the policyholders of Equitable Life, who have been impacted by the near-collapse of the Society, following events which lay well outside of our control and the remit of our role as auditor. We welcome the actions of the new Government in seeking to compensate the policyholders.
In addition we would specifically like to comment:
1. This is the only time that EY has been subject to disciplinary proceedings by our regulators.
2. The JDT had already found that "it has not been proved that any particular person or group of persons or body has suffered financial loss as a result of any of the proved complaints". This view is consistent with the failure of legal claims by the Society against EY in 2005. Nothing in our audits caused the Society or the policyholders any loss or damage.
3. The principal reason for the decline in Equitable’s fortunes was the wholly unexpected decision of the House of Lords in the Hyman litigation in 2000.
4. In terms of the remaining adverse findings of the JDT: these were matters of complex professional judgment in a difficult and novel area in which there was no direct technical or professional guidance at the time. It is therefore frustrating that the JDT did not agree that our judgements were reasonable, particularly given that the level of provision in the Society’s accounts for 1999 has since been supported by others, including PwC, the new auditors of Equitable, and by KPMG our expert witness in the tribunal process.
5. The Appeal Tribunal highlighted that given the circumstances at the time it would have been difficult for EY and Equitable to have viewed the eventual outcome of the Hyman litigation as anything other than "very unlikely". Under the accounting rules applicable in the late 1990s, as is the case with today’s rules, there is no requirement to disclose remote contingencies.
6. We are confident that there is no basis for any further litigation in relation to Equitable, both on substantive grounds and because any further claims are time barred.
7. Any lessons from our audit of Equitable have long been learned and embedded in our audit systems and procedures. The relevant individuals at EY have retired from the firm in the last ten years.
8. No auditor in the late 1990’s could draw on the kind of support that today’s financial services regulatory regime provides to the profession. The Parliamentary Ombudsman’s report in 2003 highlighted the shortcomings of the regulatory regime at that time.
9. We welcome the fact that the Appeal Tribunal has significantly reduced our fine by over 90% to £500,000 and has recognised the appropriateness of our appeal by not awarding costs against us.
10. We regard these matters – a decade on – as now closed.