Banks 'Failed To Learn' From Equitable Scandal

British banks and their regulators could have helped prevent the 2007/2008 financial crisis if they had learned from the mistakes made by Equitable Life, a report into the collapse of the life insurer has found.

Twenty (LSE: TWE.L - news) -five industry experts have been examining the failure of Equitable Life, Britain's oldest financial services provider, which closed to new business in December 2000 costing taxpayers £1.5bn in compensation to policyholders.

Professor Richard Roberts, of King's College London, was asked by Equitable Life to write the report to mark its 250th anniversary.

He said: "The foremost finding of the research is the absence of learning by bankers or bank regulators of lessons from the Equitable crisis.

"Clearly, with the new financial regulatory framework currently being developed in the UK, now is the time to get this wired into the new regulators' modus operandi."

Equitable Life was Britain's leading provider of life insurance and pensions and offered lucrative investment plans to high worth individuals.

At its peak it managed £26bn worth of investments for 1.5 million customers.

But it failed to make adequate provisions to ensure it could pay guaranteed rates of return to its customers even if the company's own investments turned bad.

Professor Roberts' report says: "Despite inquiry after inquiry, report upon report, the fault lines that led to the Equitable Life crisis were lost on the failed banks and their regulators."

Factors such as an "autocratic, domineering chief executive", a "risky business model" that delivered rapid growth and the inability of Equitable Life's part-time, non-executive directors to understand the "complex and opaque" products it offered were allowed to happen again at Northern Rock, RBS (LSE: RBS.L - news) , HBOS and Bradford & Bingley (Xetra: 602362 - news) , the report said.

Equitable Life's chief executive, Chris Wiscarson said: "Even in simple financial services organisations, there are facets of the business where non-executive directors will have little or no expertise.

"The fundamental question is whether 20 to 50 days a year is remotely enough for a non-executive director, even for those with recent and relevant experience.

"If the same people do the same things in the same way, you'll get the same outcome and more crises and more failures."

The report recommends the development of "a formal and continuous process of learning from crises".

It wants regulators to ensure that financial products are "simple enough to explain on one side of paper".

And it says that the industry should carry out "pre-mortems" on business models that appear "too good to be true" warning that "profits you don't understand are more dangerous than losses you do".

Equitable Life is in the process of being wound down but it continues to employ 480 staff who manage £6.1 billion worth of investments for 400,000 policyholders, most of whom will not receive the payouts they had been originally promised.

The company says its strategy is to maximise payouts to its remaining customers.