International Policyholders

Letter from an International member in New Zealand to GFSC in response to their press release last week

EMail Message      TO: Mr B BakerPress Officer GFSC
                         CC: Mr S Butterworth , Director of Insurance
                         Ms D Coulton, Dep. Director of Insurance

Dear Sir,
I hold an insurance policy with the  Equitable Life Insurance Society sold through Guernsey.

The reason I bought the policy through Guernsey was the information and documentation provided by the Guersey ELAS office and advertising in the expatriate financial press at the time by the Guernsey government, led me to believe that Guernsey offered reasonable investor protection by virtue of UK FSA supervision and the Guernsey  regulatory body. Events have sadly proven my trust has been totally misplaced.  The recent postings on the GFSC website re surveys stating that Guernsey was the most secure and preferred investment location must be viewed as so much incestuous sophistry in the light of events to date and is an insult to the intelligence of your clients, the expatriate investor. Expatriates are generally well informed on investment options and are aware of  market risk but will not accept what amounts to at best deceitful, at worst fraudulent, actions of ELAS operating under the auspices of the GFSC.

As an expatriate of some 30 years I am familiar with the choice of investment locations available to the offshore resident, regretably Guernsey now joins the list of locations such as the Caymans, Panama, Nauru and Tonga which every expatriate knows are great places not to do business unless one was running drugs or employed by the Mafia. I have attached a letter from Diane Colton (Deputy Director of Insurance) in response to an Email enquiry directed to Mr Neville by Ms Margaret Felgate of the Equitable Members Action Group seeking some definitive information on the GFSC position re International investors in the ELAS.

Quite frankly I find her response at best disingenuous, but then I did not expect much more given the responses to date from all 'authorities' involved in this debacle. As a Press Officer for the GFSC you should be, but might not be, aware of just how severely this business is impacting on the reputation of Guernsey and the Channel Islands in the minds of expatriates worldwide. Amongst my circle of expat associates, mainly in the Gulf and the Far East, great attention is focused on the outcome of the situation. The expat world is small and retirement/pension arrangements are favourite subjects during long night duties. News spreads rapidly; the current consensus is that unless international policy holders are reimbursed  their losses promptly any guarantees offered by financial/regulatory bodies in the Channel Islands are not worth the paper they are written on and are so much 'spin' designed to attract the expat dollar. Regretably events to date in Guernsey and the UK support this premise and confidence is close to being entirely lost. Prompt action by the GFSC may ensure that Guernsey and the Channel Islands are not consigned to the slums of the investment community, but  even with prompt and full repayment of siezed funds much damage has already been done and will take years to repair.  I am already aware of several associates who have moved investments out of the Channel Islands back to banks in the Gulf, myself included.

So much for the background to this letter; turning now to specifics in the letter from Ms Coulton. She states the ELAS operation, managed as a 'branch' by Bacon & Woodrow, is subject to prudential supervision including solvency by the UK FSA,  and is 'supervised' for market conduct by the GFSC. I was well
aware the UK Policy Holder Protection Act did not apply to my plan , but I DID NOT KNOW THAT THE OPERATION OF THE EL OFFICE VIA BACON & WOODROW NEGATED THE PROTECTION OF THE GFSC FOR MY AND 10,500 OTHER INTERNATIONL POLICY HOLDERS FOR THE SIMPLE REASON THE B&W CONNECTION WAS NOT PUBLIC KNOWLEDGE. These policies were sold to offshore residents from  Guernsey which promotes itself as an  international financial centre; it is blindingly obvious that the 'supervision' of the FSA and GFSC is meaningless and the EL sales structure is being used as an excuse by the GFSC to evade your much touted responsibilities to investor security. The expatriate investor community will draw the logical conclusion.

The crux of the matter is the designation of the EL sales operation as a 'branch' managed by a third party. For your information at no time in my dealings with EL, either verbally or in writing was I made aware of the B&W connection. The first I heard of it was last week! All correspondence is on EL letterheads and the few that refer to a 'branch' office, refer to the 'International Branch' of EL, ergo, the office is operated by EL.

This is born out by the attached letter from Ms Anderson of the GFSC which states that the function of B&W as a branch manager was to file an annual return and supply deposit accounts and documents to the Commission. All sales were carried out by EL staff.  In particular there is no advice from the GFSC stating that international investors fell outside the GFSC policy holder protection 'arrangements' under these circumstances. One would reasonably assume the local regulatory body which 'supervises' market conduct would have ensured that such a critical fact be given suitable prominence by a company operating in its jurisdiction. Do you think that the average expat investor would entrust his pension to a policy that had NO regulatory protection ? I think not! At best this situation is deceit, at worst fraudulent misrepresentation, and constitutes a clear case of misselling, ergo, unacceptable 'market conduct' has occurred in Guernsey and to date the GFSC has not acted. Ms Colton states that the Commission 'deals' with misselling complaints; how and when, if at all? The phrase 'deal with complaints' implies the power to achieve a result  yet Ms Colton states the Commission does not have power to arbitrate. However, she goes on to say, problems can be 'dealt with ' at a senior level!  Her nebulous use of grammar says nothing. Just what exactly then is the function of the Commission? The tone of my letter is intentionally confrontational because the time has come for plain speaking. I have viewed many letters from erudite policy holders to 'authorities' in both the UK and Guernsey containing eminently reasonable and elegant arguments of the irrefutable case for natural justice; in nearly every instant the response has been obfuscation, evasion and in the case of EL outright lies.. Decent people have, and are, trying the proper channels in their efforts to gain a just settlement but are sick of being victims. There is a growing number of people who, if the upcoming court action to ringfence international policy holders assets from  UK GAR policyholders is unsuccessful, are prepared to mount an international  media campaign to warn investors of the existing situation. I for one would far prefer my funds go to the media than a string of QC's fighting EL in court who are using policy holder funds to defend the indefensible.

The solution is obvious, the GFSC must ensure that WP policy holder's siezed funds are returned to them promptly . Only by this action will the GFSC justify its existence and commence the task of restoring confidence in the Channel Islands as a place for offshore residents to invest.
Yours etc

Dear xxxx




Thank you for your e-mail addressed to Mr Neville, with regard to the above.  I have been asked to respond on Mr Neville’s behalf.


On review of your e-mail I would like to make the following comments.


1.                  Since 1990, ELAS has operated through a branch operation in Guernsey, managed by Bacon & Woodrow, which has written business locally and internationally.  ELAS Guernsey is not a subsidiary as stated in your e-mail.


The regulatory arrangements are that being a branch operation of a UK insurer, prudential supervision, including solvency, is the responsibility of the home regulator, the Financial Services Authority (FSA) in the UK and market conduct is supervised by the Commission.  It is not an uncommon situation for branch operations to operate in this way.


The Commission deals with any misselling complaints, however, the Commission does not have the power to act as an ombudsman or arbitrator where complaints arise but will ensure that they are dealt with at a senior level. 


With respect to the ELAS situation, I confirm that the Commission has been in continuing discussions with both ELAS and the FSA in the UK since the situation arose


2.                  It is the Commission’s understanding that there is no ringfencing and all of the International funds are invested in the UK. 


We are following the issues raised in the Warren Report and believe that ELAS has asked Nicholas Warren QC to undertake a further review of the issues raised in his report.  We are currently awaiting the completion of that review.


I can confirm that to the best of the Commission’s knowledge, no GARs were issued by ELAS Guernsey.


3.         There is some uncertainty surrounding the application of the UK Policyholders Protection Act.  However, the Commission understands that should Equitable become insolvent the UK Policyholders Protection Act will cover local policyholders, although we have been unable to get clarification from the Policyholders Protection Board, who will not confirm the position until such time as they are actually required to compensate policyholders.


The position appears to be different for international policyholders and the policy documents for international Equitable branch policyholders have always stated that the UK Policyholder Protection Act does not apply.


4.                  You are incorrect in assuming that there is no policyholder protection in Guernsey.  All Guernsey international life insurance companies are required to have policyholder protection arrangements in place, whereby the companies are required to maintain a minimum of 90% of assets, representing liabilities to policyholders, in trust for the benefit of the policyholders.  Guernsey insurance companies are also required to maintain a minimum level of solvency, which is monitored on a regular basis.


As ELAS Guernsey is a branch of an UK operation, it falls outside these policyholder arrangements.  As with all branches, the Commission monitors the companies in respect of market conduct; solvency being the responsibility of the FSA in the UK.


A copy of your complaint has been forwarded to Equitable for their comments and I will revert in due course.


Please rest assured that the Commission is acting in the best interests of the International policyholders.


Yours sincerely


Diane Colton

Deputy Director of Insurance

Thank you for your email of 11 August.

In response to your query about Bacon & Woodrow, they were not involved in writing business for the Equitable Life Assurance Society. Bacon & Woodrow act as the General Representative for Equitable in Guernsey. Their responsibilities include submitting the annual insurance return for a company and depositing any accounts, reports and documents requested by the Commission.

The salespeople who provided advice and sold the investment plans would not have been employees of Bacon & Woodrow.

Yours sincerely


Tracy Anderson

Senior Analyst


Dear Mr xxxx


Re: Complaint involving Equitable Life Assurance Society (ELAS)


We understand how frustrating this situation must be for you and the Commission is in the process of appointing a London law firm to provide opinions on the situation for the international policyholders but the issues surrounding the situation are very complex. ELAS conducted business in Guernsey through a branch operation which is not an uncommon situation in many jurisdictions around the world.


We would draw your attention to the press release on the Commission’s website. We are currently in the process of drafting a notice containing further information.  


There are one or two points from your email that we would like to provide further clarification. The Guernsey Government does not advertise through the expatriate financial press as a matter of policy.


The Commission has acted promptly and since the situation arose we have been in communication with ELAS and the FSA and have been trying to seek clarification regarding the situation of the international policyholders.


You refer to seized funds. There is no such thing; all of the Guernsey branch business is written into the UK single with-profits fund, which is why the ring-fencing issue is so, complicated.


We do not understand the point about Bacon & Woodrow’s involvement negating the protection of the GFSC and would ask that you clarify this statement.


As we have already mentioned in our press release, the FSA is responsible for the prudential regulation of ELAS including solvency and the Commission oversees market conduct which would include such matters as mis-selling. In a situation where a firm operates through a branch operation the lead regulator is the home regulator and the powers of the host regulator only extend to the market conduct activities. This is a common way for companies to operate.


When ELAS first established a presence in Guernsey they were exempt from registration under the Insurance Law. The exemption was removed in 1998. As branch operations do not fall within Guernsey’s policyholder protection arrangements the Commission required ELAS to state on their policy literature what the situation was with respect to the UK Policyholders Protection Act and based on the information provided to the Commission the literature does in fact state this.


As stated the Commission has been in discussions with the FSA and Equitable and it is correct to state that we do not have Ombudsman or arbitration powers under our laws. We do try to ensure that complaints are dealt with at an appropriate level but we have no rights of arbitration between parties. Legislation to introduce an Ombudsman scheme is currently being drafted.


The Commission’s role can be summarised as follows: We have general powers of supervision and development, including responsibility for the prevention of economic crime. We also have statutory powers to enforce compliance with the laws regulating the conduct of financial business in Guernsey.


With respect to your final paragraph as mentioned it is not possible to require funds to be returned to Guernsey as the funds have always been deposited in the UK single with-profits fund.


If you have any further questions please do not hesitate to come back to me. 


Yours Sincerely


Steve Butterworth

Director of Insurance