INDEX

Website updated to 3 August 2010 (including full transcripts of interviews with Group Fraud & Security here and here and letter of dismissal)

So who is peeing on the ICAEW? It's not me, it's those corrupt members of the Investigation Committee of the ICAEW (all of them) and other officials within the ICAEW who have brought this ancient and proud institution to a state of absolute moral corruption, as described below.

Part 1 - Uncovering a scandal (Equitable Life, Lloyds TSB, Scottish Widows and the Financial Services Authority)
   
Part 2 - The turn of the screw (Reporting to management, suspension, investigation, dismissal)
   
Part 3 (this page) - A banner with a strange device (Follow-up actions)

Part 3 explains what I have done since I was dismissed to follow up:

  • the original whistleblowing matter;
  • the victimization by my management resulting from the whistleblowing;
  • the failure of Scottish Widows' auditors (PricewaterhouseCoopers) to qualify the 1998 accounts of that company on account of the whistleblowing matter.
   
17. Referral to Chairman, Chief Executive, Director of Group Risk Management, Chairman of the Audit Committee and Company Secretary, together with commencement of legal proceedings.
18. Referral to City of London Police, Independent Police Complaints Commission, Professional Standards Unit and the Information Commissioner
19. Referral to Financial Services Authority, Members of Parliament, the Treasury Select Committee, the Parliamentary and Health Service Ombudsman and the Complaints Commissioner
20. Referral to Institute of Chartered Accountants in England & Wales (ICAEW)
20.1 My complaint of victimization
20.2 My complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization
20.3 Complaint 1 to the ICAEW against PricewaterhouseCoopers (concerning their conduct as auditors of Scottish Widows - which was bankrupt in 1999)
20.4 Complaint 2 to the ICAEW against PricewaterhouseCoopers (concerning their conduct as auditors of Lloyds TSB - which was bankrupt in 2009)
21. Institute of Chartered Accountants in England & Wales - Skeletons (or the ghost of Enron)
22. Institute of Chartered Accountants in England & Wales - Conduct unbecoming
23. The Daily Telegraph
24. The BBC
25. Freedom to Care
26. The Institute of Internal Auditors
27. The Institute of Chartered Accountants of Scotland and the Bar Council
28. Lothian & Borders Police and the Procurator Fiscal
29. The Accountancy Investigation & Discipline Board
30. The European Parliament (The Committee on Petitions and the Committee of Enquiry into the Crisis of the Equitable Life Assurance Society), Norman Baker MP
31. Public Concern at Work
32. Private Eye
33. Personal consequences
34. Looking ahead
35. And you? What will you do?
   
Part 4 - Legal action against Lloyds Banking Group plc and the Parliamentary Ombudsman
   
 
The sections below have two parts, a 'Section summary' and a 'Section detail'. You can read through the summaries only to get an overview of the follow-up action I have taken, and refer to the detail sections where you would like further information. Where the detail section is very short the section summary simply says 'See section detail'.
 

17. Referral to Chairman, Chief Executive, Director of Group Risk Management, Chairman of the Audit Committee and Company Secretary, together with commencement of legal proceedings (Top of page)

Section summary: Next summary

When I was suspended in December 2002 I referred the matter to the most senior management in Lloyds TSB on the basis (a) that harassment of a whistleblower was a serious matter which they had a duty to act on and (b) that the issue of the Scottish Widows demutualisation was significant, involving GBP1.5 billion and possible civil and criminal offences by directors. They refused to act. In particular, the Chairman of the Audit Committee refused to act on grounds that were quite clearly spurious, as I explain below. He said, for instance, that I should provide more evidence, knowing full well that I had no authority to carry out an investigation (a bit difficult to do this when you have been suspended!) and that the general advice to whistleblowers is 'Don't investigate the matter. You may make matters worse if you do. It's your job to raise the concern, not prove it.' (this is quoted from an official publication). The rest of the section details my correspondence with senior management and the path to litigation, which I started on 11 December 2008, being an action against the bank for harassment. The history of the my legal action against Lloyds TSB is in part 4.

Next summary

Section detail:

Ewan Brown, Chairman of the Audit Committee of Lloyds TSB

When I was suspended in December 2002 I referred this matter to the Chief Executive of Lloyds TSB (Peter Ellwood), the Director of Group Risk Management of Lloyds TSB (Michael Green), who was Alan Hubbard's (Director of Group Audit) manager, and the Chairman of the Audit Committee of Lloyds TSB (Ewan Brown), all of whom declined to look into the matter. When Peter Ellwood and Michael Green brushed me off I pursued the matter with Ewan Brown, since it was clear to me that as a Chartered Accountant and as Chairman of the Audit Committee he at least had a clear duty to act.

Ewan Brown - a man of iron integrity - I don't think.

Ewan Brown refused to intervene on the grounds that it would be inappropriate for him to become involved in the bank's investigatory or disciplinary procedures and that I should provide further evidence relating to the Scottish Widows demutualization. This was in spite of the fact that:

You will notice a curious (or perhaps not so curious) double standard here. The bank pursues preposterous allegations (eventually found to be unsubstantiated) made against a relatively junior member of staff (myself) with alacrity by initiating an investigation by Group Fraud & Security, yet absolutely refuses to lift a finger to investigate extremely serious allegations made against its directors, supported by clear facts and made by a Chartered Accountant in their own internal audit department who was acting on the advice of the Ethics Advisory Service of the Institute of Chartered Accountants (ICAEW).

Peter Ellwood, Chief Executive of Lloyds TSB - Another moral coward who ran a mile when the going got tough!

'On the 11th November and on the specific advice of the Ethical Advisory Service of the ICAEW, I reported certain concerns of mine to the bank’s external auditors, PricewaterhouseCoopers (PwC), relating to the demutualisation of Scottish Widows; namely, that the directors of Scottish Widows, and possibly also the directors of Lloyds TSB, might have made misleading statements/inadequate disclosures at the time of the demutualisation of Scottish Widows concerning a contingent liability in respect of Guaranteed Annuity Rate (GAR) policies and the availability of the £1.5bn ‘Additional Account’ to non-GAR policyholders. I was also concerned, given that (as I understand it) the demutualisation arrangements had been approved by a Court of Law, that, if any misleading statements/inadequate disclosures had been made with an intention to mislead or an intention to not properly disclose information, then the directors referred to may have committed perjury. While I had not carried out a full enquiry into this matter, I believed that the facts were sufficient to put a reasonable person on enquiry and that I had a clear duty to report my concerns. Although I followed the ICAEW’s advice in reporting the matter to PwC, I had some reservations about doing this, which I expressed, since it occurred to me that PwC had probably been closely involved in the demutualisation process and, on this basis, could not necessarily be relied upon to give an independent view. I should say that I had notified my line management of my intention to refer this matter to PwC and asked for the name of a partner to contact. My line management declined to provide me with this information.

PwC discussed this matter with Alan Hubbard, Group Audit Director, on, I believe, 12th/13th November. One of their partners (a Mr. Keers I believe) then telephoned me on the 14th November to tell me that PwC were satisfied that there had been nothing wrong with the demutualisation process. He suggested that I might like to contact Client Services at Scottish Widows, who he thought might have a list of stock answers to queries from policyholders. Alan Hubbard subsequently wrote to me to the effect that he intended to rely on assurances given to him by PwC. I drafted a reply to Alan Hubbard saying that I did not think it was prudent to rely on unsupported verbal representations made by a party who, if there had been anything wrong with the demutualisation process, might have reasons for concealing that fact. The sending of this reply was overtaken by events.

On the 12th December I was suspended from my job. Of some 31 allegations made against me (including one allegation of ‘altering the design of the holiday spreadsheet’, another of ‘criticising the use of a report template’, another of being ‘unwilling to attend a course’ and another of being ‘unwilling to comply with standard SW audit working paper file requirements’), 10 derive (apparently) from my being ‘unwilling’ to do certain things. Now, you will not need to consult the Lloyds TSB Staff Manual to know that there is no offence in that document of being unwilling to do anything and this fact alone should be sufficient to confirm the malicious intent behind my suspension and to dismiss the entire document accordingly. A further 5 allegations derive (apparently) from ‘abuse of working from home privilege’, dating back to March this year, and a further 4 relate to matters that I referred to PwC on the specific advice of the Ethical Advisory Service of the ICAEW (which the ICAEW are writing to me to confirm). Other offences apparently include ‘threatening senior line management with legal action’, which is not true (although I did consider using the bank’s grievance process). The context of this was that my annual bonus was cut this year from £1000 to £500 (by 50%) because, according to Howard Monks, Head of IT Audit, I had been off work for three months (25% of the year) following a heart attack in September 2001. I suspect that another member of Group Audit (Andrew Billinge), who has also had a heart attack and been off work as a result, has not been treated in this manner.

I immediately referred my suspension to Michael Green, Director of Group Risk Management, and asked him (via John Troon of Group Fraud & Security) to suspend the disciplinary proceedings against me pending an independent enquiry into the full circumstances surrounding my suspension, including the allegations made against me. I also asked him to refer this matter to you. I had received no response by close of business on Friday.

'I am writing in response to a letter from your Executive Assistant, Andrew Gunn, dated 17th December. I must be frank and say that I found this letter to be extraordinarily complacent; it appeared to me to be simply an excuse for a). doing nothing and b). avoiding blame. In this sense the letter was typical of what I can only call the ‘smooth problem avoidance culture’ that it the cancer within Group Audit which has been the primary cause of the present situation.

I have received a reply from Professor Brown to my fax to him dated 15th December. His reply was completely unsatisfactory and I shall be writing to him to this effect shortly. This will cover, inter alia, the matters of the Scottish Widows demutualisation, the website audit report and Group Audit’s failure to report the lack of encryption of the E-Mail link between Scottish Widows and the bank. The matter that I am referring to you now is the disciplinary process that has been initiated against me. Let me get to straight to the point.

If you can understand why a disciplinary process has been initiated against me for, amongst other things, altering the design of a holiday spreadsheet and being unwilling to go on a course, while, at the same time, no action of any kind has been initiated (by the same people – my line management) against the person who knowingly and deliberately withheld critical audit evidence from me during the same period (this amounts to severe obstruction of the audit process and the fact that it happened is provable being any doubt), then you will begin to understand the nature of the cancer I have referred to above. Similarly, if you can understand why a disciplinary process has been initiated against me for these reasons while, at the same time, an entire business unit (Scottish Widows) has been allowed (by the same people – my line management) to ignore large sections of the ITEC Rules (which are mandatory, retrospective and immediate in effect) for several years then, again, you will begin to understand the nature of the cancer I have referred to above. In these circumstances, taking no action is not an option.

I have already stated the view (and it should be quite obvious to anyone reading the list of allegations against me) that this disciplinary process has been initiated by my line management with malicious intent. On this basis and on the basis that I had previously made it known, or it had become obvious, that I was likely to initiate harassment and/or grievance proceedings against Roger Cooper (Senior Manager, Group Audit), Howard Monks (Head of IT Audit, Group Audit) and Alan Hubbard (Group Audit Director) and (in addition and for separate reasons) to report them to the Institute of Internal Auditors (IIA) for what I believe are breaches of the IIA ethical rules, it is clearly inappropriate that these people or any of their colleagues (who may not be fully independent in this matter) should be involved in the disciplinary process in any way, since they have a clear interest in trying to get me dismissed. I am therefore asking you to take steps personally to ensure that no-one from Group Audit is involved in the disciplinary process...'

'It is not inappropriate for you to get involved in procedures under the bank’s disciplinary process where prima facie such procedures have been maliciously initiated in an attempt to prevent an individual from following up matters which are of valid concern to the Audit Committee. On the contrary, this is precisely the sort of situation that should ‘have the alarm bells ringing’. Furthermore, it should be obvious that people are very likely to resort to character assassination in such circumstances. You should be aware of this and make sure of the facts.

With regard to the demutualisation, I spoke to John Troon twice on the telephone. On neither occasion did I offer any evidence. Indeed, although he was trying to wheedle information out of me, I declined to discuss the matter (other than to make some very general comments) because I thought it would not be appropriate. If you are under the impression that ‘could offer no evidence’ then you have been misled – another matter which you should investigate. I have now written to the FSA and attach a copy of my letter to them. It should also be quite clear that it is not my duty to carry out an investigation into this matter, it is yours. I have no authority to carry out an investigation , you do. On this basis it would not be reasonable to expect me to produce a complete and indexed body of evidence. My duty is to report my valid concerns once I have been put on enquiry and to see that these concerns are properly investigated, which I am doing.'

'1. I refer to your letter of 30th December.

2. You claim to have clarified your position. As the recipient of this ‘clarification’ I must say that it clarifies nothing at all. You have simply stated that I will ‘be given a fair hearing’. There is absolutely nothing to support or explain this statement and it simply flies in the face of what I said on this point in my previous faxes. It is patently obvious, for the reasons I have already stated, that the Audit Department is not the ‘appropriate department’. Since you give no reason or explanation for your statements, I think it is fair to assume you have none. You are simply making an unsupported assertion.

3. While providing an unsatisfactory response in relation to the procedures under the bank’s disciplinary process (above), you have completely ignored other matters that should be of concern to you, namely the failure of Group Audit management to take any effective action in response to severe obstruction of the audit process, the failures of Group Audit (and indeed Scottish Widows) management in relation to ITEC compliance and Alan Hubbard’s and Howard Monks’s bullying of a member of staff who had just suffered a heart attack. Are you intending to simply ignore these issues?

4. It is my duty to point out to you that I believe that the bank’s actions towards me are a criminal offence under section 2 of the Protection from Harassment Act 1997 and that by failing to act in this matter you are party to this offence.

5. I would like to thank you for giving me the opportunity to clarify the position.'

18. Referral to City of London Police, Independent Police Complaints Commission, Professional Standards Unit of the City of London Police and the Information Commissioner (Top of page)

Section summary: Next summary Previous summary

Harassment is a criminal offence under the Protection from Harassment Act, so I reported the matter to the City of London Police (Lloyds TSB's headquarters are in the City of London). They refused to act, alleging that the Act only covered harassment caused by stalking and similar anti-social conduct. This is clearly untrue because the Act makes no mention at all of stalking and defines harassment as 'conduct' (i.e. any conduct) which a reasonable person thinks amounts to harassment; no mention of stalking. The police also argued that employment situations are covered by employment laws, so the matter should be dealt with by a civil tribunal or court. This would mean, of course, that any harassment of an employee by an employer would not be treated as harassment under the Act. This ridiculous assertion was comprehensively trashed by the House of Lords in Majrowski v. Guy's and St. Thomas' NHS Trust. I complained to the City of London Police's Professional Conduct Directorate. They refused to pursue the matter on the basis of legal advice given to them to the effect that the 'final act' of dismissing me was not harassment. This was a clever dodge because the Act says that harassment must be a 'course of conduct' involving two or more occasions, so one act (such as an act of dismissal) can never amount to harassment! All of this is irrelevant because what I had complained of to the Police was a campaign of harassment lasting over a year, not an 'act of dismissal'. Naturally, I asked to see the legal advice under the Freedom of Information Act, but the Police refused on the grounds of legal professional privilege. I applied to the Information Commissioner, who upheld the Police's assertion that the legal advice was subject to a general exemption of legal professional privilege, ignoring the Information Commissioner's own rule that the legal professional privilege exemption is subject to a public interest test which means that all requests must be judged on their own merits i.e. there is no general exemption on the basis of legal professional privilege. So the Information Commissioner simply rode roughshod over his own rules.

Next summary Previous summary

Section detail:

'Detective Chief Inspector Morgan of Bishopsgate Police Station, London

I wish to make a formal complaint concerning the above officer and a sergeant at the same station. I do not have a record of the sergeant’s name but he is the Crime Desk Sergeant on 0207 601 2653. I do have a tape recording of my telephone conversations with both of these officers but I have not prepared a transcript. DCI Morgan told me that the conversation was recorded from his end.

I spoke first to the Crime Desk Sergeant on 14th January. I reported what I believe to be a criminal offence committed against me by my employers, Lloyds TSB, under section 2 of the Protection from Harassment Act 1997. Basically, the sergeant declined to take any action on the basis that disciplinary action taken against an employee by an employer was exempt under section 4.3.b. I believe this to be untrue. I believe that employers can and do use disciplinary procedures against employees for malicious reasons and I believe that such action falls within the scope of the Act. The sergeant did agree to refer the matter to DCI Morgan who later phoned me back. He also maintained that disciplinary action taken by an employer against and employee was exempt.

My complaint is that the police officers concerned have refused to follow up a criminal offence on what I believe to be patently spurious grounds. One of these officers told me that the Act was intended to deal only with sexual harassment. I believe this to be untrue. I will be grateful if you could investigate this matter and ensure that if there is a prima facie case under the Act that the matter is properly pursued.'

'I refer to your letter of 4th April. You state that 'the intention of the act is to prevent 'stalking' and other similar unsocial conduct'. There is absolutely nothing in the Protection from Harassment Act to support this view - quite the opposite in fact. The act states:-

'1. (1) A person must not pursue a course of conduct-
(a) which amounts to harassment of another, and
(b) which he knows or ought to know amounts to harassment of the other.
(2) For the purposes of this section, the person whose course of conduct is in question ought to know that it amounts to harassment of another if a reasonable person in possession of the same information would think the course of conduct amounted to harassment of the other.'

Harassment is therefore defined by the Act as any behaviour which a 'reasonable person' considers to be harassment – no limits or qualifications. It's as simple as that. Your statement is quite simply nonsense.

Your statement that the act was not intended to address harassment by a company is a red herring, even if true. Where did you get the impression that I am a complaining about harassment by a company, as opposed to individuals? Did you actually listen to the tape of the telephone calls? I certainly believe that I am being subjected to harassment by specific individuals. I haven't been given the opportunity to report the names of these individuals because you, the police, are refusing to investigate the matter (crime).

I wish to complain about what I believe is deliberate lying on your part during an investigation and will be grateful if you could advise me how I should proceed. I shall refer this matter to my MP in any event. I would be grateful for a prompt reply.'

'I refer to the statement that I sent to you via recorded delivery on 12th July. I wish to add the following to that statement:

When an employer initiates an investigation against an employee into alleged acts by the employee that are patently not against the company's own rules then there must be a prima facie case that the motive of the individuals behind the investigation is to harass the employee, particularly where, as in this case, the investigation is carried out by Group Fraud & Security. This is, in my view, sufficient grounds for the police to investigate the matter under the Protection from Harassment Act – there is a prima facie case of harassment.'

'I refer to your letter of 2nd December. You must think me naive in the extreme if you thought that I would not notice that your response was limited to 'the final act of terminating your employment'. Why have you not considered all the other 'acts' of the persons concerned e.g. knowingly making false or unfounded allegations against me and initiating an investigation with the view to harassing me out of the company? The fact that the investigation concluded that there were no grounds for disciplinary action against me, together with the other circumstances (of which you are aware), constitute a strong prima facie case of harassment. I intend to refer this matter to my MP with a view to him referring the matter to the Ombudsman. In the meantime I will be grateful if you would answer the points I have raised. I will also be grateful if you could send me a copy of the legal opinion you have obtained. In this context I would draw your attention to the following case with respect to what constitutes harassment.

In Esther Thomas v Newsgroup Newspapers Limited Neutral Citation number [2001] EWCA CIV 1233, the Court of Appeal considered the meaning of 'harassment' under the 1997 Act. In giving the judgment of the court Lord Phillips MR said -

"29. Section 7 of the 1997 Act does not purport to provide a comprehensive definition of harassment. There are many actions that foreseeably alarm or cause a person distress that could not possibly be described as harassment. It seems to me that section 7 is dealing with that element of the offence which is constituted by the effect of conduct rather than with the types of conduct that produce that effect.

30. The Act does not attempt to define the type of conduct that is capable of constituting harassment. "Harassment" is, however, a word which has a meaning that is generally understood. It describes conduct targeted at an individual a which is calculated to produce the consequences described in section 7 and which is oppressive and unreasonable.

You need not bother writing to me again to the effect that this matter is closed. It will be closed when (and only when) you do your job properly.

I will be grateful for a timely reply to this letter.'

'I refer to your letter dated 31st January. I am writing to ask for an internal review of the case to be carried out in accordance with the Act.

In the first place you state that my request 'has been dealt with in accordance with the provisions of the Freedom of Information Act 2000.' This is not true since my request was not dealt with within the time limit of 20 days. I wrote to you on 1/1/2005 and you replied on 31/1/2005, 11 days late.

The factors favouring non-disclosure you cite in your letter are all general points that do not relate to the specific case in question.

The 'Freedom of Information Act Awareness Guidance No 4 states in Section 42 (Legal Professional Privilege) that 'The legal professional privilege is class based. Therefore, for the exemption to apply, it is not necessary to demonstrate that any 'prejudice' may occur to the professional legal adviser/client relationship if information is disclosed. Rather, it is assumed that the disclosure of even quite trivial information might undermine the relationship of the lawyer and the client. Nevertheless, the exemption from the right to know is conditional and can only be relied upon where the public interest in maintaining the exemption outweighs the public interest in disclosing the information. Issues concerning the public interest are discussed below.'

Section D ('The Public Interest Test') states that 'The Act broadens the scope of consideration of the public interest beyond preventing that which is unlawful to weighing the public interest in disclosing information and not disclosing them. The Act can, however, be used to oblige an authority with a claim to legal professional privilege to review its decision to maintain the privilege on public interest grounds. ALL REQUESTS MUST BE JUDGED ON THEIR OWN MERITS.'

This makes it quite clear that IT IS NOT SUFFICIENT FOR AN AUTHORITY TO ATTEMPT TO RELY ON A GENERAL PRINCIPLE OF EXEMPTION AND THAT EACH CASE MUST BE JUDGED ON ITS OWN INDIVIDUAL MERITS, THAT IS FACTORS THAT RELATE TO THE PARTICULAR CASE IN QUESTION. Since Superintendent Moore has not raised ANY factors that relate to the particular case in question and since he has only sought to rely on a general principle of exemption (see his points 1,2 and 3 under the heading 'Factors favouring non-disclosure'), it is clear that there are no such specific factors. Superintendent Moore has therefore failed to provide the justification for exemption required by the Guide and his case must fail accordingly.

The main purpose of the legal adviser/client exemption is clearly to prevent one party in a litigation from obtaining information from the other party in a litigation. If we consider the facts of this particular case it becomes clear that this is a very different situation, namely one where the police obtained legal advice effectively ON MY BEHALF AND BASED ON INFORMATION THAT I PROVIDED. What possible justification can there be for not disclosing the legal advice obtained, particularly since any lawyer would presumably give the same advice on the basis of the same facts, provided by me? It is my view that to attempt to rely on the exemption in such a situation is nothing less than a perversion and distortion of the principle.'

'City of London Police – Information Request No: COL/05/5

I wish to refer the above request to you for review. The ground for my complaint is that the booklet 'Freedom of Information Act – Awareness Guidance No 4' states under the heading 'The Public Interest Test' (p.7) that 'All requests must be judged on their own merits' and that the City of London Police have failed to assess my request on its own merits either in their original response to my request (their letter dated 31st January) or in the subsequent Internal Review (their letter dated 18th April). In neither case have the particular merits/demerits of my request been detailed. In their letter dated 31st January the 'factors favouring non-disclosure' mentioned are all general points that are not specific to my case. For instance, their point that 'confidentiality between lawyer and client promotes respect for the rule of law by encouraging clients to seek legal advice and allowing for full and frank exchange between clients and their lawyers' is a general point which could be said of any legal advice; no reasons are given as to why in this particular case the disclosure of the requested information to me would prevent a 'full and frank exchange between clients and their lawyers' or how it would result in disrespect for the rule of law (a preposterous reason in my view). Their letter of 18th April simply says that my request was 'judged on its merits' but doesn't say how.'

19. Referral to Financial Services Authority (FSA), Members of Parliament (MPs), the Treasury Select Committee, the Parliamentary and Health Service Ombudsman and the Complaints Commissioner (Top of page)

Section summary: Next summary Previous summary

The Financial Services Authority (FSA), Members of Parliament and the Treasury Select Committee

I naturally referred my concerns about the Scottish Widows demutualisation to the FSA at an early stage (January 2003), since they are the regulators of the financial services industry and are the proper people to handle such matters. In other words, I initially complained to the FSA about Scottish Widows. When the FSA persistently refused to deal with my complaint properly (even, at one point, refusing to correspond further, although all I wanted was a simple answer to a simple question which could have cleared the whole thing up, as explained below), I complained about the FSA to the Treasury Select Committee, who oversee the FSA, via my MP: I did this initially through Sir Archy Kirkwood (Liberal) and then, when I moved to another constituency, through Alan Beith (also Liberal). Over a period of nearly 5 years both MPs persistently refused to take a stand on the issue; that is, to make a moral judgement and act accordingly. They quite literally just acted as post-boxes, simply forwarding letters (without comment) between myself and the FSA and myself and the Treasury Select Committee. Of course, this conduct on their part sent a clear message to the FSA and the Treasury Select Committee that they could act as they pleased and that nothing would be done about it. Alan Beith even reached the point where he said (in essence) that the Treasury Select Committee were entitled to make their own minds up on the matter, even though he was fully aware that the Committee had never considered my complaint as a committee; it was the Chairman of the Committee (John McFall MP) who was stonewalling me. Thus Alan Beith moved from moral cowardice to plain dishonesty. As for John McFall, he declined to pursue my complaint on the basis that the Treasury Select Committee had decided not to investigate individual cases (a self-made rule - one wonders why - which they break when it suits them - see Farepak and Northern Rock). He maintained this argument even though (1) I made it quite clear that my complaint was not an 'individual case' in the sense that it related to one organisation, since the FSA's supervision of the GAR issue was clearly an industry-wide issue and the Committee could have investigated the Scottish Widows demutualisation in the context of an industry-wide enquiry into that issue, (2) I made it clear that my complaint was not an 'individual case' in the sense that it only concerned a wrong done to one person (the complainer)*, since it affected hundreds of thousands, and possibly millions, of people (which, funnily enough, was the precise reason given by the Committee for setting up its own 2001 enquiry into Equitable Life) and (3) John McFall was fully aware at the time that the Treasury Select Committee were investigating two 'individual cases', those of Farepak and Northern Rock. John McFall was dishonest from the beginning, but this is because his main aim as Chairman of the Treasury Select Committee had always been to protect the Labour Government (rather than hold the government to account - which is the whole purpose of select committees) and it was the Labour Government who had decided to betray the policyholders of the life companies in the first place when the whole GAR issue blew up.

* Note that John McFall used different definitions of the phrase 'individual case' as it suited him, claiming, on the one hand, that it referred to an individual organisation and then, on the other hand, that it referred to a complaint by an individual person in respect of a wrong done to them.

In 2009 the Treasury Select Committee, under John McFall's chairmanship, carried out an investigation into the causes of the banking crisis in the UK. His pantomime outrage against the bankers who they hauled up in front of the Committee was something to watch. It was, of course, plain to anyone with an ounce of common sense that the main cause of the banking crisis in the UK was the lax regulatory regime implemented by the Labour government, which allowed the banks to take huge risks with our money in order to generate grotesque bonuses for themselves (Do you think the banks would resist the temptation to do this unless prevented by law?). It was these risks coming home to roost that caused the banking crisis. The weak regulatory regime was the responsibility of the FSA, it was the Treasury Select Committee who was responsible for oversight of the FSA and it was John McFall who, as Chairman of that Committee, did everything in his power to cover up the FSA's regulatory shortcomings. In short, the man who was the main cause of the banking crisis in the UK (through his failure to supervise the regulator properly) was the man who chaired the Committee which investigated that crisis! You couldn't make it up. Shortly after the Committee concluded its enquiry John McFall retired as an MP and he was shoved into the House of Lords in the last gasp of the dying Labour government i.e. he was given a fat sinecure for life as a reward for his services to the Labour party (which included protecting the Labour government from proper scrutiny by the Treasury Select Committee - a job well done). Thus was a corrupt MP rewarded by a corrupt government. Fortunately, as I wrote to John McFall at the time, while he had the last laugh to the extent that he was successful in brushing off my concerns about the FSA's supervision of the GAR liabilities of the life companies, it would be I who would write his epitaph. The moving finger writes...

The Financial Services Authority and the Complaints Commissioner - complaint about Carol Sergeant

The response to my MP from the FSA in September 2003 was written by a woman called Carol Sergeant, Managing Director, Regulatory Processes and Risk Directorate of the FSA. This letter basically said that the FSA were satisfied that the prospectus sent to policyholders 'generally made clear that there was a potential contingency on the Additional Account for GAR liabilities [note that she doesn't mention the amount!], depending on the outcome of the Equitable Case' - but the Equitable Life case wasn't actually mentioned in the prospectus at all (Small point). At the time that Carol Sergeant wrote to my MP in September 2003 she was negotiating with Lloyds TSB for a job, at more than twice her then salary, which she took a month later. So Carol Sergeant was involved in a serious complaint concerning Lloyds TSB, including allegations of criminal offences by the directors of that company, at a time when she was negotiating with those same directors for a job - at more than twice her then salary. When I complained about this to the FSA in 2009 they lied about their own rules and denied that Carol Sergeant was responsible for the letter, even though she had signed that letter (Seriously! Even when they have signed a letter they can still deny responsibility for it!). When I complained to Sir Anthony Holland, the Complaints Commissioner, that the FSA had lied to me on this basis, he simply repeated their lie and took it at its face value i.e. he accepted the FSA's statement that Carol Sergeant was not responsible for a letter she had signed and in which she wrote 'I am replying... '. So, as far as the FSA and the Complaints Commissioner are concerned, it is not good enough to 'have it in black and white'.

The Parliamentary and Health Service Ombudsman

In October 2006 I wrote to the Parliamentary and Health Service Ombudsman, asking her to investigate the FSA's supervision of the Scottish Widows demutualisation. My reasons were two fold; firstly, because, as far as I was aware, the FSA was within the jurisdiction of the Ombudsman and, secondly, because the Ombudsman was then in the middle of an enquiry into the FSA's supervision of the GAR liabilities of Equitable Life (report issued in July 2008). Since both matters concerned failures in the FSA's regulation of the GAR liabilities of life companies within a common timescale, it seemed to me that there were very strong grounds for referring the Scottish Widows demutualisation to the Ombudsman. How wrong I was! The Ombudsman's office basically 'moved heaven and earth' NOT to investigate my complaint:

  • Three times they claimed that I had complained outside the time limit, and three times I explained to them why I had quite clearly complained within the time limit. They eventually dropped that argument.
  • They argued that the Ombudsman had absolute discretion in deciding what to investigate. I replied that I assumed that they applied a set of principles or criteria to all complaints, so that they would investigate a complaint if it was made on similar grounds to a previous complaint that they had investigated.
  • They twice tried to 'close my file', knowing that they had no authority to do so.
  • They twice claimed (including a Director) that my complaint was outside the Ombudsman's jurisdiction because it concerned 'conduct of business regulation', which is outside the Ombudsman's jurisdiction, rather than 'prudential regulation', which is within the Ombudsman's jurisdiction. I found out later that this was an outright lie, as described below.

At one stage, and to get round their evasions, I sought to amend my complaint but they argued that my 'new' complaint was too far removed from my old complaint and so had to considered as a new complaint, and therefore had to be referred by an MP, even though, as I explained to them, both my complaints concerned the FSA's supervision of the GAR liabilities of Scottish Widows; the only difference being one of timing (i.e. during the demutualisation in the original complaint as opposed to before and during the demutualisation in the new complaint). Their response to this was a short E-Mail from an Executive Assistant to the effect that my comments had been noted. The whole argument about 'new' and 'old' complaints is, of course, completely meaningless if, as they claimed, my original complaint was outside the Ombudsman's jurisdiction anyway on the grounds that it related to conduct of business regulation as opposed to prudential regulation. Presumably, if I had made a new complaint along similar lines they would simply have said 'Thanks for that. But, sorry, it's outside our jurisdiction.' I was getting nowhere.

The Parliamentary Ombudsman' report on the Equitable Life crisis was published in July 2008. When I read this some months later it became clear (and when I say 'clear' I mean that the law was plain) that the Scottish Widows demutualisation, being a transfer of long-term business, fell within the prudential regulation functions of the FSA, and so was within the jurisdiction of the Parliamentary Ombudsman, rather than the conduct of business regulation functions of the FSA, which are outside the jurisdiction of the Parliamentary Ombudsman. More importantly, the Parliamentary Ombudsman's report made it crystal clear that she had known all along (right from the word go) that the Scottish Widows demutualisation was within her jurisdiction and that she (and her staff) had therefore lied in telling me that it wasn't. In short, I have been subject to the classic bureaucratic 'it's outside our jurisdiction' brush-off - and this from a public official whose sole duty is to protect the public.

Having read the Parliamentary Ombudsman's report I looked further into the distinction between the prudential regulation functions of the FSA and their conduct of business regulation functions. My research made it even clearer that the distinction was clear and well-known, not just by the Parliamentary Ombudsman but by others such as the BBC and Lord Penrose, who had explained the matter in his report on the Equitable Life crisis (The Penrose Report). I even found a memorandum from the Parliamentary Ombudsman to the Committee on Petitions of the European Parliament which proved that the Parliamentary Ombudsman was fully aware of all this at the same time that she was telling me that my complaint was outside her jurisdiction. It was therefore beyond any possible doubt that she had lied to me - pure and simple. No-one with eyes to see could come to any other conclusion.

In January 2009 I wrote to the Parliamentary Ombudsman asking for an explanation of this contradiction (i.e. her saying that my complaint was outside her jurisdiction when her own report made it quite clear that it wasn't). My repeated reminders were simply answered by acknowledgement slips, so after sending them a formal 'Letter before claim', as required by court rules, I started legal proceedings against the Parliamentary Ombudsman by way of an application for a judicial review in the High Court; that is, a judicial review of her decision that my complaint was outside her jurisdiction. A history of the legal proceedings can be found in part 4.

Next summary Previous summary

Section detail:

Alan Beith, MP for Berwick-upon-Tweed - Dodger of the Decade.

John McFall MP (Labour), Chairman of the Treasury Select Committee - This picture doesn't show his underpants because they are on fire.

The Financial Services Authority (FSA), Members of Parliament and the Treasury Select Committee

'Dear Mr. Tanner,

Thank you for your E-Mail. I have a professional duty as an auditor and a public duty as a citizen to make sure that this matter is properly handled. How can I ensure that you are handling the matter properly if you will not provide me with any feedback? You must appreciate that in the absence of such feedback I will have no option but to pursue the matter further, in short to make it public.

I look forward to hearing from you.

Yours sincerely,

Graham Milne'

'Sir,

Thank you for your e-mail below, I apologise for not replying sooner.

As I explained to you in my original acknowledgement letter, disclosure restrictions imposed on the FSA by the Financial Services and Markets Act 2000* prevents me from giving you feedback unless the result of our enquiries is put into the public domain.

However, I can reveal that FSA has previously looked at Scottish Widows demutualisation scheme and we do not believe that the additional information you have supplied gives FSA any further cause for concern.

The FSA continues to have an interest in this issue, so it may be necessary for either myself or a colleague to contact you in the future regarding the concerns you have raised. Likewise if you become aware of any other relevant information relating to this matter, please do not hesitate to contact me.

Regards,

Colin Tanner'

*I believe that this is just a blind. I have had a fairly thorough look at the Act I can see nothing that prevents them from providing feedback, subject to normal restrictions on confidentiality. A typical bureaucrat's excuse I would say.

Note that on 29 October 2003 Carol Sergeant was appointed Chief Risk Director at Lloyds TSB and is now a trustee of Public Concern at Work, a whistleblower support organisation! A well-earned position for someone who actively misled a whistleblower! Note the clear conflict of interest here, given that she must have handled a complaint relating to Lloyds TSB after she had accepted a senior position within Lloyds TSB (she appears to have been approached by Lloyds TSB in around July 2003). See this article in The Independent of 30th October 2003 ('Gamekeeper turns poacher' - I'll say!), which shows that on 29 October 2003 Carol Sergeant made a point of saying that she was not involved in another FSA matter involving Lloyds TSB. This shows (a) that she recognized the critical importance of avoiding conflicts of interest and (b) that, during that very same period, she was knowingly involved in a matter giving rise to a serious conflict of interest, given that it involved an allegation of criminal misconduct on the part of directors of Lloyds TSB, including, presumably, those who offered her the job. Woof!

Let's just get these events in order:

  • As a whistleblower I make a complaint to the FSA which includes allegations of criminal misconduct on the part of directors of Lloyds TSB (and remember that these are not vague allegations but clear breaches of specified statutes based on clear evidence).
  • Shortly afterwards those directors of Lloyds TSB approach the Managing Director of the FSA responsible for handling the complaint and offer her a senior position (newly created!) on a salary package which appears to be more than double her existing salary (If the Director was not responsible then why did she deal with my complaint? That would be even more serious.).
  • That Managing Director then deals with that complaint by actively misleading the complainant, while the person who should have dealt with my complaint is on holiday.
  • That Managing Director then leaves the FSA and joins Lloyds TSB having made a public statement to the effect that she was not involved in any matter within the FSA which involved Lloyds TSB.
  • That Managing Director is then appointed as a trustee of the UK's leading whistleblower organisation. I later approached Public Concern at Work about Carol Sergeant, as described below.

Carol Sergeant.

I later made a complaint to the FSA about Carol Sergeant as follows:

  • On 5 February 2009 I wrote to the FSA as follows:

'I wish to make a complaint about the FSA in that a director of the FSA handled a complaint (Case no: 030826B) to the FSA relating to Scottish Widows, a major Lloyds TSB group company, after she had accepted a senior position within Lloyds TSB or was, at least, aware that she might soon be doing so, and that this amounts to a serious conflict of interest and is contrary to both regulatory requirements and applicable standards, such as the Combined Code. Carol Sergeant wrote to my MP on 29 September 2003 concerning this matter and Lloyds TSB issued a press release on 29 October 2003 announcing Carol Sergeant's appointment as Chief Risk Director of Lloyds TSB.

See:

http://www.happywarrior.org/widows/widows03.htm#carol_sergeant'

  • On 24 February 2009 the FSA wrote to me as follows:

'With reference to our letter of 12 February 2009, we regret that we may be unable to investigate your complaint under the FSA Complaints Scheme.

This is because under our rules you must complain within 12 months of the date you first became aware of the matter giving rise to your complaint (See COAF 1.4.6 - Our rules on this are in the Complaints against the FSA (COAF) section of the FSA Handbook at http://fsahandbook.info/FSAlhtml/handbook/COAF).

From your emails of 5 and 6 February 2009, it appears you became aware of the circumstances in relation to your complaint in 2003, over 12 months ago. So, we may not be able to look into your complaint.

However, we can look at complaints after this 12-month time bar if you had reasonable grounds for the delay in complaining. If you did, please send us evidence of this as soon as possible; otherwise we will not be able to investigate your complaint under the Scheme.

With regard to your complaint about the fitness of Carol Sergeant, this does not come under the remit of the Complaints Scheme, however, we have forwarded your letter to the FSA's Supervision Team who, if appropriate, will make further enquiries. You should be aware that our relationship with a firm is confidential and we are not able to disclose to third parties the outcome of any discussions we may have with a firm. We can assure you that the FSA takes all the information it receives seriously. We also understand that our apparent silence on such matters may be disappointing to you, however there are a number of reasons why the FSA does not generally disclose whether or not it has taken any action as a result of information supplied to it, including the following:

  • section 348 of the Financial Services and Markets Act 2000 (FSMA) prevents the FSA from disclosing information it has received from or about firms other than in limited circumstances. Unfortunately, informing an individual who has passed information to the FSA about discussions which take place between the FSA and the firm in question is not one of the circumstances where disclosure is permitted. There will be a number of circumstances in which the FSA receives information concerning firms it does not regulate (for example where it is considering whether a firm ought to be authorised). The restrictions on disclosure in section 348 of FSMA also apply to information the FSA receives relating to firms it does not regulate;
  • if the FSA is taking formal enforcement action against a firm or an individual, section 391 of FSMA prevents the FSA from publishing any information about the detail of that action until it has been finally concluded; and
  • the FSA may be prevented by the criminal law from disclosing information relating to financial crime.

There are also other reasons why the FSA will not generally disclose whether or not it has taken any action as a result of information supplied to it, even where those legal provisions do not apply:

  • The FSA's policy is that it will only publicise whether or not it investigates a matter in exceptional circumstances (see section 6 of the FSA's Enforcement Guide in the FSA Handbook).
  • Any public statement issued by the FSA could adversely affect how the firm is perceived in the eyes of consumers, and hence have an adverse impact of the firm's business, in circumstances where the firm may not have had the opportunity to put across its side of the matter to the FSA.'
  • On 27 February 2009 I wrote to the FSA as follows:

'I refer to your E-Mail and attachment below. All the rules that you quote which prevent you revealing information about investigations relate to complaints against firms or individuals regulated by the FSA, including those in the Enforcement Guide. My primary complaint is against the FSA (namely the question of whether a Managing Director of the FSA acted improperly while in office in the FSA), not against a firm or outside individual. There is the secondary question of whether Carol Sergeant should be an authorised individual, but it does not follow that because it might be valid to withhold information relating to this secondary matter, it is valid and proper for you to withhold information relating to the primary matter. With regard to my complaint against the FSA, it seems to me that you are hiding behind regulations which relate to a different type of matter altogether. If there are any rules, regulations or statutes which prevent you revealing information relating to complaints against the FSA itself then please let me know. It would hardly be acceptable for the FSA to make rules that prevent disclosure of information relating to complaints against itself; this would be a licence to the FSA to cover up its own wrong-doings. I am prepared to challenge such an interpretation in the High Court by means of judicial review, if necessary.'

  • On 4 March 2009 the FSA wrote to tell me that they would investigate my complaint and to ask for evidence.
  • On 15 March 2009 I wrote to the FSA as follows:

'I am writing with reference to your E-Mail below and attached letter. The evidence is referred to in my initial E-Mail of 5/2/09 which referred to Carol Sergeant's letter to Sir Archy Kirkwood of 29/9/03 (copy attached) and to Lloyds TSB's press release of 29/10/03. Other evidence will be on your file referred to in my E-Mail and on the website at:

www.happywarrior.org

You say that there are 'certain restrictions' on what you can tell me. Can you please explain exactly what these are?'

  • On 18 March 2009 the FSA wrote to me as follows:

'You asked in your e-mail to explain exactly what the 'certain restrictions' are as mentioned in my letter of 4 March 2009. As explained in my letter of 24 February 2009, the restrictions refer to section 348 of the Financial Services and Markets Act 2000 (FSMA) which imposes confidentiality requirements on the FSA concerning the FSA's relationship with a firm.

More detailed information of the FSA's obligations in this respect can be viewed at:

http://www.fsa.gov.uk/pubs/mou/equivalence/protection.pdf

  • On 23 March 2009 I wrote to the FSA as follows:

'We seem to be going round in circles. For the second time I would point out to you that the main part of my complaint concerns the conduct of Carol Sergeant as an employee of the FSA, so laws relating to firms are irrelevant in that context. If there are any rules that prevent disclosure in relation to an employee or ex-employee of the FSA then please let me know. If you quote none and do not provide any information on the results of your enquiry I will simply take the matter to the High Court for judicial review. It cannot be right that a public body can refuse to reveal any information about complaints against itself. This would be an open invitation to corruption. The choice is yours. If the FSA want to end up in court then so be it.'

  • On 25 March 2009 the FSA wrote to me as follows:

'Thank you for your further e-mail of 23 March 2009 concerning disclosure. With regard to employees/ex-employees of the FSA, we will need to be satisfied that the restrictions on the disclosure of "personal data" in the Data Protection Act allow us to include information about employees in any report on an investigation. In addition, in relation to current employees (not the case here), we also owe them a duty of care as their employer. But it is too early in the investigation to know what information will or will not be contained in our report, so I would suggest that you await our substantive response before making any decisions about taking the matter further.

Regrettably, it has now been four weeks since we entered your complaint into the Complaints Scheme and we have not yet completed our investigation.

We will contact you again within four weeks; if we have finished our investigation, this will constitute our substantive response to your complaint.'

  • On 22 April 2009 the FSA wrote to tell me that their investigation was on-going.
  • On 21 May 2009 the FSA wrote to tell me that their investigation was on-going.
  • On 19 June 2009 I sent a reminder to the FSA.
  • On 23 June 2009 the FSA wrote to me as follows:

Since we wrote to you on 21 May 2009, we have investigated the matters raised in your correspondence in line with the FSA Complaints Scheme.

Allegation

In our letter of 4 March 2009, we explained the FSA Complaints Scheme and outlined our understanding of your complaint in relation to our rules (as set out in the 'Complaints against the FSA' section of the FSA Handbook - COAF). We understood your complaint as:

You claim that Carol Sergeant, then a Managing Director of the FSA, handled your complaint to the FSA relating to Scottish Widows, part of Lloyds TSB Group, after she had either accepted, or was aware that she might soon be accepting, a senior position within Lloyds TSB. You allege that she has therefore acted improperly while in office as a director of the FSA.

With reference to COAF, we defined your complaint as an allegation of a lack of integrity on the part of the FSA.

Decision

Our letter explains, below, that we have not upheld your complaint.

Background

On 22 August 2003 Sir Archy Kirkwood MP wrote, on your behalf, to John Tiner, Managing Director at the FSA, concerning your dispute with Scottish Widows and your previous dealings with the FSA on this matter. A response was sent by Carol Sergeant on 29 September 2003.

Investigation

Our investigation has reviewed all retrievable files (from archives) relevant to Carol Sergeant's involvement in the handling of the 2003 complaint and her appointment to L TSB to assess whether there appears to have been any impropriety on the part of the FSA or Carol Sergeant as a director of the FSA.

Findings

We reviewed the archived supervision files for Scottish Widows at the time of the complaint in 2003 and have found no evidence to suggest that Carol Sergeant had any involvement in the handling of the complaint or the supervision of Scottish Widows at that time. She was Managing Director, Regulatory Processes & Risk Directorate, at that time. Michael Foot was Managing Director, Head of Financial Supervision, who therefore had responsibility for the Lloyds TSB group.

There is an FSA procedure for dealing with all MPs letters. On receipt, all MPs letters are immediately passed to Public Affairs and Accountability (P AA) for acknowledgement, a case file is opened and passed to the relevant area for advice and a draft response which is then passed back to the original senior recipient for signature. P AA are responsible for the case file and an action/progress sheet is completed and signed at each stage. We retrieved from archive and reviewed the MPs letter file for this case. A draft response was prepared and agreed between P AA, the whistleblowing team and the supervisors. It was prepared for signature by John Tiner but, in his absence, Carol's name was added as signatory at the last stage (it is normal procedure for the original recipient to respond). This was explained with an apology for the delay in the opening paragraph of the letter. From the file, Carol Sergeant had no involvement in the preparation o[the draft, before being identified as the signatory.*

[*This is clearly a lie. Carol Sergeant's name was not added as a signatory at the last stage; the letter clearly states at the beginning 'I [Carol Sergeant] am replying in John's absence'. Carol Sergeant says 'I' meaning it is a letter from her, meaning that she is the author of the letter and is responsible for its contents. How many different ways do I have to put this? Also, they say that 'from the file Carol Sergeant had no involvement in the preparation of the draft' - other than the fact that she actually wrote in the letter 'I am replying' and then signed it. So, they even have the gall to contradict a plain statement in black and white signed by the person concerned. By the way, when you write a letter do you put a note in the file saying 'I have written a letter?'. No, you just put the letter on the file. The fact that you have said in the letter 'I am writing this letter' and then signed it is fairly conclusive proof that you wrote the letter. What this means is that even where a bureaucrat has written in a letter 'I am writing this letter' and then signed it, that they can STILL avoid taking responsibility for that letter. Thus is the bureaucratic art of deception, distortion and obfuscation taken to its highest level. They must be proud of themselves.]

The resignation date for Carol Sergeant is 7 November 2003. The notification date on the FSA's database (Chrysalis) is 29 October 2003.

In the minutes of a senior meeting of the FSA's executive (ChairCo) on Monday 27 October 2003, John Tiner announced (after Carol had left the meeting) that she had accepted an executive position at Lloyds TSB, Group Director of Risk, and an announcement would be made on 29 October 2003. Reallocation of her reporting line responsibilities was discussed and agreed.

The FSA Chairman, Callum McCarthy, notified the Board of the FSA of Carol Sergeant's resignation on 28 October 2003 which explained that she would be giving up all firm-specific responsibilities immediately, would leave the FSA on Friday 7 November 2003 and she would not join Lloyds TSB until the end of February 2004.

In a note dated 29 October 2003, John Tiner informed all FSA staff of Carol Sergeant's resignation.

There is no reference to Carol Sergeant's resignation in any of the minutes of relevant meetings prior to 27 October 2003. The Board minutes of20 November 2003 noted Carol Sergeant's resignation with effect from 7 November 2003.

There is no requirement on senior FSA staff to inform the FSA that they are in job discussions with a regulated firm, as opposed to when they intend to accept an offer*. We are satisfied, on the basis of the dates set out above [i.e. totally ignoring anything before 27 October 2003], that Carol Sergeant had not formed an intention to accept the position at Lloyds TSB at the time she signed the letter to Sir Archy. We have not therefore approached Carol Sergeant for her comments on the complaint.

[*This is a lie. The FSA's Code of Conduct section 3.8 states that FSA staff are 'under a duty to declare to your line manager, or others as appropriate, any potential conflict of interest that arises in the course of your work, for example at meetings or during discussions.' In addition, section 3.6b requires disclosure of 'any other significant relationship' and section 3.7 requires immediate disclosure of any changes.]

Conclusions

Sir Archy Kirkwood's letter of 22 August 2003, received on 26 August 2003, was responded by Carol Sergeant on 29 September 2003. We have found no evidence that the FSA was aware of Carol's resignation before 27 October 2003, at which point the Executive acted quickly to remove her firm-specific responsibilities. There is no evidence within any of the files to suggest that Carol was involved in the complaint investigation other than acting as signatory to an MP's letter in John Tiner's absence, in line with procedures.

For these reasons, we do not believe there was any impropriety or conflict of interests on the part of the FSA or Carol Sergeant as a director of the FSA; this complaint is therefore not upheld.

If you are dissatisfied with the outcome of this investigation you may refer your complaint to the Complaints Commissioner who may decide to carry out his own investigation. A referral to the Complaints Commissioner should usually be made within three months of the date of this letter, although a referral outside the three months' time limit may, where there are adequate reasons for the delay, still be considered by the Complaints Commissioner.'

  • On 15 September 2009 I wrote to the Complaints Commissioner, Sir Anthony Holland, as follows:

'I am writing to complain about the FSA's response to my complaint to them concerning the conduct of Carol Sergeant, a former Managing Director of the FSA. The FSA's response is contained in the attached letter dated 23/6/2009. My complaint is that:

1. The letter states that 'there is no reference to Carol Sergeant's resignation in any minutes of relevant meetings prior to 27/10/2003', yet the attached article in The Independent of 30/10/2003 states 'She was passed over for the top job at the regulator in July when John Tiner, previously head of insurance, was named as the new chief executive. Ms Sergeant was approached at about the same time about the Lloyds job. Ms Sergeant said in an e-mail to staff yesterday: "You should know that the executive members of the FSA board and Andrew Procter [enforcement director] were made aware as soon as I was approached...'. This article makes it clear that in around July 2003 Carol Sergeant informed the FSA Board that she had been approached by Lloyds TSB. The FSA's statement that there is no reference to her RESIGNATION is a red herring, since the Board were informed that she had been APPROACHED by Lloyds TSB in July 2003 and the Board should have insisted that Carol Sergeant had no further involvement in any matters relating to Lloyds TSB from that time onwards. It was also incumbent of Carol Sergeant herself to avoid any potential conflict of interest after she had been approached.

2. The FSA's letter says that 'there is no requirement on senior FSA staff to inform the FSA that they are in job discussions with a regulated firm , as opposed to when they accept an offer.' Firstly, I have already made the point that the Board were informed in July 2003 and, secondly, regardless of what the requirements are relating to disclosure of such matters, all FSA staff are under an obligation to avoid actual or potential conflicts of interest. This means that once Carol Sergeant had started discussions with Lloyds TSB concerning a potential job, she was under an obligation to avoid any potential conflict of interest. She breached this obligation by responding to my complaint.

3. It cannot be claimed that signing a letter in someone's absence absolves the signatory of any responsibility. If you sign a letter (particularly as a Managing Director) you assume responsibility for its contents.'

  • I wrote further on the same day as follows:

'Further to my E-Mail below [see above], I would like to draw the Commissioner's attention to the FSA's Code of Conduct for its staff at:

http://www.fsa.gov.uk/pubs/staff/code_conduct.pdf

including sections 3.2, 3.3 and 3.3A which imposes a duty to avoid conflicts of interest and 3.5(d) which specifies that 'an expectation of a future interest (for example, future employment)' is a potential source of a conflict of interest.

On this basis, Carol Sergeant ought to have been aware that an expectation of future employment amounted to a potential conflict of interest and that she should therefore have avoided any involvement in any complaint involving Lloyds TSB from the time that such an expectation either existed or could have reasonably have been foreseen.

I would ask the Commissioner to particularly note that the FSA, in its response to me, made no reference to its own Code of Conduct and therefore failed to assess Carol Sergeant's conduct by reference to its own rules, which is a quite extraordinary omission. I wish to make this matter a matter of specific complaint against the FSA and would ask that the Complaints Commissioner deal with it accordingly.'

  • I wrote further on the same day as follows:

'Further to my E-Mails below [see above], I would ask the Commissioner to note the definition of 'significant relationship' as given on page 5 of the Code of Conduct as 'a relationship with another person which an independent third party might reasonably consider could affect your actions'. Clearly, a significant relationship exists in this sense where a member of staff of the FSA discusses a potential job with an employee/representative/director of a regulated body, since an independent third party will reasonably consider that this could affect the FSA staff member's actions.'

  • I wrote further on the same day as follows:

'Further to my E-Mails below, I wish to make a further complaint against the FSA. In her letter to me of 23/6/2009 Ruth Rowland stated that 'there is no requirement on senior FSA staff to inform the FSA that they are in job discussions with a regulated firm'. The FSA's Code of Conduct section 3.8 states that FSA staff are 'under a duty to declare to your line manager, or others as appropriate, any potential conflict of interest that arises in the course of your work, for example at meetings or during discussions.' In addition, section 3.6b requires disclosure of 'any other significant relationship' and section 3.7 requires immediate disclosure of any changes. When two parties in are holding discussions about potential employment this amounts to a significant relationship in relation to conflicts of interest.'

  • On 24 September 2009 the Sir Anthony Holland wrote to me as follows:

'Turning to the issue of the signing of the letter to your MP (29th September 2003) by CS [Carol Sergeant], I do not consider this to be a conflict of interest. Clearly the matter at hand that the MP had requested information on was the SWD and the FSA position on the matter. The FSA responded on that issue and that issue alone. The FSA in its decision letter to you dated 23rd June 2009 stated;

"There is an FSA procedure for dealing with all MPs letters. On receipt, all MPs letters are immediately passed to Public Affairs and Accountability (PAA) for acknowledgement, a case file is opened and passed to the relevant area for advice and a draft response which is then passed back to the original senior recipient for signature. P AA are responsible for the case file and an action/progress sheet is completed and signed at each stage. We retrieved from archive and reviewed the MPs letter file for this case. A draft response was prepared and agreed between PAA, the whistleblowing team and the supervisors. It was prepared for signature by John Tiner but, in his absence, Carol's name was added as signatory at the last stage (it is normal procedure for the original recipient to respond). This was explained with an apology for the delay in the opening paragraph of the letter. From the file, Carol Sergeant had no involvement in the preparation of the draft, before being identified as the signatory."

This provides a clear explanation of what has happened in this case.* I note that you have not produced any evidence to demonstrate CS was in anyway involved in the original review of the SWD that took place at the time of SWD, that is, during late 1999 and early 2000 [Finding the evidence is what investigations do; that's your job in case you hadn't noticed. I report my concerns, you investigate those concerns. Well, if you are honest you do. How am I supposed to produce internal evidence from within the FSA about what their staff did? You know I cannot do that; you can however]. Furthermore you have not produced any evidence to demonstrate that CS had any involvement in the FSA position prior to the letter of 29th September 2003. It seems clear to me from the documentation that I have seen that the only involvement CS had in relation to your case is the signing of that letter, which normally would have been signed by Mr Tiner normally, and could have been signed by a number of other FSA employees in his absence. It may well be the case, as you suggest, that signing a letter means that the signatory "assume(s) responsibility for its contents". However what it does not mean is that the signatory, representing the FSA on this occasion, played any part in formulating the content of the letter in question and I am satisfied that in this case CS played no part in arriving at the decision contained in that letter.

[*As I have said above, this is clearly a lie. Carol Sergeant's name was not added as a signatory at the last stage; the letter clearly states at the beginning 'I [Carol Sergeant] am replying in John's absence'. Carol Sergeant says 'I' meaning it is a letter from her, meaning that she is the author of the letter and is responsible for its contents. How many different ways do I have to put this? Also, they say that 'from the file Carol Sergeant had no involvement in the preparation of the draft' - other than the fact that she actually wrote in the letter 'I am replying' and then signed it. So, they even have the gall to contradict a plain statement in black and white signed by the person concerned. By the way, when you write a letter do you put a note in the file saying 'I have written a letter?'. No, you just put the letter on the file. The fact that you have said in the letter 'I am writing this letter' and then signed it is fairly conclusive proof that you wrote the letter. What this means is that even where a bureaucrat has written in a letter 'I am writing this letter' and then signed it, that they can STILL avoid taking responsibility for that letter. Thus is the bureaucratic art of deception, distortion and obfuscation taken to its highest level. They must be proud of themselves.]

In conclusion I do not consider the material you have put forward to demonstrate any significant failings on the part of the FSA. Nor do I consider you have demonstrated any fraud during the SWD or since. It is my view that your allegations are largely without merit or foundation and as a consequence I am utilising my unfettered discretion formally not to investigate your complaint under COAF 1.5.6.'

[The single point about the signing the letter proves beyond any doubt that Sir Anthony Holland is a liar.]

Sir Anthony Holland - liar extraordinaire

  • On 30 September 2009 I wrote to Sir Anthony Holland as follows:

'Well done! You have successfully trashed your own reputation in a single letter. I will publish your letter on www.happywarrior.org and dissect it in detail. It will remain there for the rest of your life. But don't worry, as this Labour government says, 'If you have done nothing wrong you have nothing to fear'; people will make their own minds up about your conduct. I will simply report the facts, so you will get due credit.'

'Dear Sir Archy,

Thank you for your letter of 3rd October. Yes, I would like to comment. I would like to know by what standard the FSA deemed the disclosure to policyholders of the contingent GAR liability adequate. In my original letter to John Tiner I quoted the relevant FRS on contingent liabilities. This does provide a standard as to what should be disclosed and, as I said, I can see no good reason why this standard should not have been applied in the circumstances - if Carol Sergeant has such a reason perhaps she would be good enough to give it. How can disclosure be deemed adequate when it does not explain the nature and extent of the contingency and the circumstances in which the directors believe that contingency might materialise? The simple answer is that it can't.

I would be grateful if you could put these points to the FSA.

Yours sincerely,

Graham Milne'

'Dear Sir Archy,

Thank you for your recent letter. If you read the letter from the FSA, it will be obvious to you that they no longer even bother to make a pretence of answering my points. You will forgive me for saying so but I am beginning to wonder if at any point in this process you will get off the fence and take a moral stance on this issue. It seems to me (and, again, I am sure you will forgive me for saying so) that you are simply forwarding correspondence back and forth. This must make you the most expensive postbox in history.

Yours sincerely,

Graham Milne'

'I enclose the reply I have now received from the FSA about the wording of the demutualization document.

I received your E-Mail of 16th March. You are quite at liberty to write to the Clerk of the Treasury Committee pressing the Committee to carry out an enquiry into this matter. The Committee are already aware of my request that they should do so.

Yours sincerely,

Alan Beith'

The reply that Alan Beith referred to is a letter dated 29 March from Clive Briault, Managing Director, Retail Markets, FSA, which states as follows:

'In my letter of 26 July 2005, I referred you to Scottish Widows' Demutualisation and Transfer Policyholder Circular (Part IV), published on 19 November 1999, several months before the final Equitable ruling. The document sets out the details of the demutualisation and transfer, including the terms for the Additional Account. Page 23 (under the heading 'Contingencies') says:

"The contingencies allocated to the With Profits Fund are any additional costs of meeting guaranteed benefits on Transferred Policies allocated to the With Profits Fund and any unexpected liabilities which arise in the future but relate (with certain exceptions) to the operation of the Society and its subsidiaries prior to the Effective Date, including those arising as a result of the SIB pensions review and tax liabilities on pre-Transfer transactions."

I hope that this is helpful.'

Well, this was helpful in the sense that we had finally (after 3 years) pinned the FSA down on the precise wording which they claimed 'generally made clear' to policyholders the existence of a GBP1.5 billion contingent liability in respect of GAR policies at the time of demutualization. The question was, of course, whether the statement on page 23 did actually make clear, in accordance with relevant accounting standards (i.e. FRS 12*), the nature and extent of the contingent liability and the director's assessment as to the likelihood that the contingency would crystallize; in other words, having read the statement would a policyholder understand:

  • that Scottish Widows had a contingent liability of GBP1.5 billion in respect of GAR policies at that time?
  • that if the Equitable Life case, then before the Court of Appeal, went against Equitable Life then the GBP1.5 billion put aside by Scottish Widows in the 'Additional Account' would not be paid to ordinary policyholders as stated on page 23 of the Demutualization and Transfer Policyholder Circular of 19 November 1999 but would be paid to GAR policyholders instead?
  • what the assessment of the directors of Scottish Widows was as to the likelihood of the liability crystallizing?

The answer to these questions is, of course, a resounding 'No'. As I had already pointed out to Alan Beith, and as the FSA themselves are well aware, the wording on page 23 falls so far short of adequate disclosure that it amounts to positive concealment. No reasonable person would or could dispute this point.

*Note that FRS 12 applies to financial statements, that is sets of accounts. Nonetheless, financial statements are designed to present a true and fair view and it therefore follows that any financial-type document which is supposed to present a true and fair view should comply with Financial Reporting Standards (FRS). It is for those who seek not to comply with FRS who need to justify their position. FRS 12 is therefore the 'yardstick' by which the adequacy of the disclosure of the contingent liability in respect of GAR policies should be judged.

Dear Mr. Lee,

I refer to your letter dated 13 September. You say in that letter that 'the Treasury Committee made a decision at its first meeting that it would not investigate individual cases'. May I refer you to:

http://www.publications.parliament.uk/pa/cm200001/cmselect/cmtreasy/272/27206.htm

where you will find a report titled 'Select Committee on Treasury Tenth Report, Equitable Life and the life assurance industry: An interim report'. Paragraph k) of the 'Summary of Conclusions and Recommendations' states that 'Equitable Life failed to explain to their policyholders the full implication of Lord Woolf's judgment. The FSA should therefore consider whether the assessment made by Equitable Life, and indeed by themselves, of whether the eventual House of Lords ruling could have been predicted, was justified, especially given Lord Woolf's judgment (paragraph 37).' This paragraph, as well as others, make it quite clear that the Committee did investigate the Equitable Life affair, in the context of the life assurance industry, and in fact the conduct of the FSA in relation to the Equitable Life affair, and that there is therefore no reason whatsoever why the Committee cannot also investigate the Scottish Widows demutualisation, in the context of the life assurance industry, and particularly the question of whether Scottish Widows failed to properly explain the nature of its GAR liability to policyholders (or the Court of Session) during the demutualisation process, as well as the conduct of the FSA in relation to the Scottish Widows demutualisation and other demutualisations as well. In short your reply is either deliberately misleading or a bare-faced lie.

I intend to pursue this matter either via the appropriate ombudsman or via judicial review or both. I will be grateful if you could copy this E-Mail to the Chairman of the Committee and ask him to respond.

May I draw your attention to:

http://www.cps.gov.uk/legal/section22/chapter_c.html

[now moved to http://www.cps.gov.uk/legal/l_to_o/misconduct_in_public_office/index.html]

where you will find some relevant information on misconduct in public office. I would classify deliberately lying to a member of the public (who has referred the matter to the Committee on the recommendation of his M.P.) on your part in the context of such a serious matter to be misconduct in public office.

You will find a copy of your letter of 13 September and of this E-Mail on:

http://www.happywarrior.org

Yours sincerely,

Graham Senior-Milne

Note: What has actually happened here is, as far I can see, as follows. It appears that at the beginning of every new parliament each committee decides on the scope of its activities. The Treasury Select Committee, it appears, did indeed make a decision not to investigate individual cases, even though it had done exactly that in the past (such as in the Equitable Life case referred to above for instance). So why on earth would they make such a decision? How can they possibly decide that no individual case that might come before them in the future would justify investigation? In fact, as I explain below, the Committee ignores this rule when it feels like it, as is illustrated by the well-known Farepak and Northern Rock cases.

'The fact of the matter is that I am not asking and have never asked the committee to investigate the Scottish Widows demutualisation as the case of an individual person. John McFall raised the same point about 'individual cases' in his letter of 27th February 2006 and in my letter to Alan Beith of 3rd March 2006 I made it quite clear what the basis of my complaint to the committee was. In that letter I wrote 'I will be grateful if you could write again to John McFall asking him to respond to these points.' Did Mr. Beith do this? How is it possible that in spite of the papers that I have submitted and in spite of the correspondence on this matter that John McFall apparently still does not understand the situation?

John McFall is, I believe, fully aware that my complaint is not an 'individual matter' but that it concerns a very serious issue to do with the FSA's supervision of GAR liabilities; he is, I believe, fully aware that the committee has full powers to investigate the affairs of individual companies (e.g. Farepak and Northern Rock) as part of enquiries into broader issues; he is, I believe, fully aware that possible failures by the FSA in their supervision of the Scottish Widows demutualisation are part of a much larger problem concerning the FSA's supervision of the GAR liabilities across the industry. Nobody who had actually read my papers and the correspondence could possibly misunderstand the matter in the way that John McFall makes out.

Mr. Beith first approached John McFall in September 2005 (Mr. Beith's letter to me of 28th September 2005). It is now over 2 YEARS later. The situation is absolutely unacceptable, given that this is an extremely serious matter that has been properly referred to the committee by an MP and yet it is quite clear that the committee has not actually discussed the matter as a committee at all (Mr. Beith's letter to me of 10th April 2006 refers). How is it possible that Mr. Beith can allow such a situation to continue?

I will be grateful if Mr. Beith could write to John McFall in the strongest possible terms (with a copy to myself). Further, rather than simply passing on my views on the matter, it is incumbent on Mr. Beith to take a moral stand. I have come to the conclusion that John McFall is stalling and will continue to stall indefinitely unless Mr. Beith makes an issue of this. It is absolutely unacceptable, indeed an outrage, that such a matter can be deliberately delayed in such a manner (though I suspect it is for you a wearily familiar aspect of the political scene).'

'John McFall's decision not to pursue the matter was based on the assertion that it was an individual case. It is not an individual case but a serious issue relating to the conduct of the FSA, which is very much within the remit of the Committee, and he ought to reconsider it on that basis. I am not asking you to dictate to the Committee but to point out that the basis on which they rejected my complaint was wrong. I say 'they' but the matter had never actually been considered by the Committee as a whole, as you know.

I am asking you to refer the matter again to John McFall on this basis.'

and

'I have John McFall's letter of 13th November to hand. This states that the Committee does not examine individual cases but the whole point of my letter to you of 25th September was to point out to you (and to ask you to point out to John McFall) that my complaint is not an individual complaint.'

'I refer to your letter of 24th January enclosing John McFall's 'reply' of 15th January. His 'reply' is not a reply at all; it is a one-line letter of acknowledgement of receipt. A proper reply addresses and responds to the issues raised by the sender. The reason John McFall treats both you and I with such contempt is that you have consistently failed to take a stand on the issue. He KNOWS you will do nothing. It is a sad reflection on you that you should be treated in this way. You are letting John McFall walk all over you - and your response is to meekly pass on his 'reply'. This is also an insult to me by you, since you clearly couldn't care less what I do about it. I would like to give you one further opportunity to take a moral stand on this issue and to do what you know to be right. You have had the choice right from the beginning to say to me 'Mr. Milne, I disagree with your point of view and I will not pursue the matter further (for x, y and z reasons).' The fact that you have not done this proves the merit of my case, but you have not been prepared to stick your neck out. You have chosen the most cowardly route.'

'I write with reference to your letter of 5th February. You refer me to your letter of 5th December 2007 and to the fact that you saw no prospect of John McFall changing his mind. You also say that you were willing to submit MY arguments. These two things are directly related, of course, because it is entirely due to the fact that you decline to put forward any views OF YOUR OWN that John McFall feels free to act as he does. Your message to him, in failing to voice your support, is effectively 'I am sending this on to you but if you refuse to do anything about it, I am not going to do anything about it.' No wonder he acts as he does. The fundamental point here is that you have a moral duty to decide whether or not you agree with what I say. You have declined to do this - because I presume you wish to avoid any risk to yourself. I am sorry of you find this offensive but it is the truth. You must be prepared to face the truth.

Now that it is evident that the Parliamentary Ombudsman's office will use every trick in the book NOT to look into my complaint (are you surprised?), it is clear that you need to go back to John McFall with forceful arguments of your own - one's that make it clear to him that this is an issue that you are not prepared to give up and will pursue as necessary. If this upsets your relationship with him, well that is unfortunate but your duty comes first.'

'I am writing with reference to your letter of 19th February. You say that you know of no further arguments beyond what I have already submitted. This is not the point. It is not WHAT is said, it is WHO says it that matters. John McFall will not listen to ANY argument I put forward or which you put forward on my behalf (as he has clearly demonstrated). He will only listen when he understands that you consider the matter to be important and will personally (not on my behalf) pursue the matter until it is properly dealt with. In order for him to understand this you have to tell it to him in no uncertain terms; in other words that you have no intention of letting the matter go and that if he doesn't pursue the matter properly YOU will make a fuss about it. It is pretty clear that, at the moment, he is confident that you will do nothing about it.

I will be grateful if you could write to John McFall and make this clear to him.'

'You say that 'the Chairman and Members of the Treasury Committee are capable of assessing arguments on their merits'. In the first place, the Committee has not considered my submission as a Committee at all, as you know. In the second place, the fact that someone is capable of doing something does not mean that they will do it. Mr. Blair was capable of telling the truth about the intelligence assessment of WMD in Iraq before taking this country to war. He didn't do it; he didn't do it for political reasons. He didn't do it because although capable, he made a conscious decision to lie. MPs are capable of being honest about their expenses, but they aren't. You are capable of making a moral decision about this issue and taking a stand on it but you absolutely decline to do so. You weave, you duck, you do anything to avoid taking any action that remotely constitutes a risk to you in your cosy little sinecure. You are prepared to continue doing this for years, literally until you drop dead. In fact, you have made a profession of avoiding risk to yourself; it is a measure of your life that this is what you have become best at. [...]'

'Dear Mr. McFall,

Over the last few weeks I have watched the proceedings of the Treasury Select Committee, which you chair, with a sense of increasing outrage. Let me explain why, in terms which, as a simple accountant and auditor, I hope most people will understand.

The global recession has been caused largely by the banking crisis. The banking crisis has, in turn, been caused largely by excessive risk-taking by banks around the world, but principally in the USA and the UK, who have undeniably 'led the pack'. The excessive risk-taking by UK banks has been enabled by a weak regulatory regime. To put it the other way round, a strong regulatory regime in this country could certainly have avoided the worst effects of the banking crisis. The banking regulator in this country is the FSA, which is a supervisory arm of government, set up by and acting on behalf of the Treasury. It is therefore largely the government's responsibility that the banking system in this country is in such a mess. The Labour Government in general, and Gordon Brown in particular, have fostered a risk-taking and loosely-regulated banking environment since coming into office and the blame for doing that must be laid squarely at their feet.

So where does the Treasury Select Committee come into it? Well, your Committee, like all Parliamentary Committees, is there to hold the executive to account; that is, to ensure that the Government is doing its job properly. On this basis your Committee oversees the FSA on behalf of Parliament. The question therefore arises as to how well your Committee has done its job of overseeing the FSA in the past 10 years or so and whether it (the Committee) could or should have done more to prevent the current banking crisis.

In October 2008, the Parliamentary Ombudsman issued her report on the Equitable Life Crisis, and that report identified serious wrong-doing on the part of the FSA, including that it had 'actively misled' policyholders. What she identified were not isolated acts of negligence or misconduct by individuals, but widespread, continuing, systematic (institutionalized) and conscious wrong-doing on the part of the organisation; in short, a body that was clearly, to use John Reid's words, 'not fit for purpose' as a regulator.

The point is that the Equitable Life Crisis happened back in 1999 and 2000. All the key evidence that was available to the Parliamentary Ombudsman for the purposes of her 2008 report was available to your Committee when it investigated and reported on the Equitable Life Crisis in 2001. The only conclusion is therefore that had you investigated the Equitable Life Crisis properly in 2001 then you would have identified that the FSA was 'not fit for purpose' as a regulator at that time, and had you done this then you could have taken steps to radically reform the FSA 7 YEARS AGO. Had you done this (that is, turned the FSA into an organisation that identified and dealt with problems robustly rather than brushing them under the carpet) then it is probable that the UK could have avoided the worst effects of the banking crisis - or, at least, that we stood a good chance of doing so.

But there is more. Not only was all the key evidence concerning the FSA's lack of fitness for purpose available to your Committee back in 2001, but on 22 August 2003 my then MP, Sir Archy Kirkwood, wrote to your Committee on my behalf on this very subject (the FSA's misconduct during the Equitable Life crisis and in relation to GAR liabilities generally). You then spent the next 4 years fighting what I can only describe as a rear-guard action in order to avoid investigating this matter and I even understand that, as a result of your efforts, it was never even considered by the Committee as a whole.

As Chairman of the Treasury Select Committee since 1999 you have been entrusted with a great responsibility, which is to hold the Government to account on behalf of Parliament. It is clear that you have, in fact, done precisely the opposite; you have sought to protect the Government as far as you possibly could. In acting as you did, you, and the other Labour members of the Committee who have acted in concert with you, are primarily responsible for the failure to ensure that the FSA was fit for purpose as a regulator. In order to identify one of the main causes of the banking crisis in the UK, you need to look no further than your own mirror.

During the session of the Treasury Select Committee on 10th February 2009, a member of the Committee, Nick Ainger MP, asked the former bank executives attending at that time (Sir Tom McKillop, Sir Fred Goodwin, Lord Stevenson and Andy Hornby) what banking qualifications they had. Although I feel it might be an idea to ask you this question as well, I am sure you will appreciate why I feel it is not qualifications that matter in the banking industry, it is trustworthiness. It is largely lack of trust that is responsible for the current credit squeeze and it is trust that must be rebuilt - but we need to be able to trust not just the banks and the people who run them but the regulator who oversees the banks and the politicians who oversee the regulator.

In order to rebuild trust at the political level, it is essential that, in future, the Treasury Select Committee should be chaired by an opposition MP. This is my recommendation to the Committee.'

The Parliamentary and Health Service Ombudsman

'With respect to time limits, you mention the date of January 2003 when I first contacted the FSA. However, the complaint I am making is AGAINST the FSA; when I contacted the FSA in January 2003 my complaint was TO the FSA against Scottish Widows. It took until 29 March 2006 for me to get an answer from the FSA which provides the basis of my complaint, namely the letter from Clive Briault of that date (see my website), since it was this letter that confirmed to me that the FSA had no reasonable grounds for saying that the existence of the £1.5 billion GAR liability was 'generally made clear' to policyholders at the relevant time. My complaint is therefore within time.

'It should be clear to you that Scottish Widows was and remained a regulated body throughout that period, in the same way as Equitable Life, and that the FSA's responsibilities continued, as they did with regard to Equitable Life, regardless of the sale of Scottish Widows to Lloyds TSB. There is no practical difference between the FSA's failure to ensure that Scottish Widows made adequate provision for its liabilities and made its policyholders aware of its liabilities before the sale and its failure to ensure these things during the sale, but since you choose the make a distinction it is necessary for me to amend my complaint accordingly. It should be clear to you that Scottish Widows must have failed to make adequate provision for its GAR liabilities because if they had made adequate provision it would not have been necessary for the company to put £1.5 billion aside in the 'Additional Account' during the sale.

I will be grateful if you could provide me with a copy of the relevant statutory or regulatory material which clarifies the distinction between prudential regulation and business regulation. The definition you provided implies that 'conduct of a business' does not include ensuring that a business is solvent. As a Chartered Accountant and having worked as an Internal Auditor in the banking sector for many years, it will not surprise you that I consider this to be such a nonsensical definition that I wish to clarify the matter for myself. I will also need copies of documentation which explain the changes in supervisory responsibility described in your letter and which provides details of the statutory or regulatory basis for these changes.

You will forgive my scepticism but this is the third time your office has attempted to avoid investigating my complaint on technical grounds and the grounds you raise now were not raised on either of the two preceding occasions. It has become quite clear that your office is simply looking for any excuse not to investigate my complaint - I know it, you know it. Mr. Beith knows it.'

'Having now given careful consideration to your email of 10 February, I have to tell you that I remain of the view that the Ombudsman cannot investigate your complaint, at least at present.

The complaint that Mr Beith referred on your behalf was specifically concerned with the FSA's supervision of the Scottish Widows demutualisation, and alleged that they had failed to ensure that policyholders were adequately informed of the significance of liabilities arising from previous annuity guarantees. The complaint that you now wish the Ombudsman to investigate alleges that the FSA failed to ensure that Scottish Widows had adequate reserves in place to meet those liabilities. That is too far removed from your original complaint to be regarded as a mere amendment, and so falls to be considered as an entirely new complaint. Since the Ombudsman cannot investigate any complaint unless it has been referred to her by a Member of the House of Commons, you would need to ask a Member of Parliament to refer this new complaint if you wish the Ombudsman to consider it.

I should point out, however, that even were you to do so, I consider it unlikely that the Ombudsman would intervene. You are already aware of the requirement that a complaint should be made to a Member of Parliament within 12 months of the date on which the aggrieved person first had knowledge of the matters giving rise to it. It is evident that you knew in early 2002 that the sum set aside for contingent liabilities was to be used to meet the GAR liabilities, and there is nothing in the information you have provided that I believe would persuade the Ombudsman to exercise her discretion to waive the time bar. Further, the Ombudsman will not normally investigate any complaint unless it has first been put to the body concerned, and they have been given an opportunity to respond. While I note that you have complained to the FSA about their supervision of the demutualisation, you would need also to show that you had raised with them the issue that you now ask the Ombudsman to investigate. [Note that I had already twice made clear to them (see my letters of 25 October 2006 and 28 October 2007 above) that my complaint was within the 12 month time limit because I had complained to them on 21 October 2006 against the FSA following the FSA's letter to me of 29 March 2006, which provided the grounds for my complaint - so I made my complaint within 8 months.]

The FSA's powers and responsibilities are set out in the Financial Services and Markets Act 2000. That the Ombudsman cannot investigate complaints against the FSA acting in their own right can be confirmed by reference to schedule 2 to the Parliamentary Commissioner Act 1967. [See my comments above on Andy Comber's letter of 6 February 2008.]

If you remain dissatisfied with the way in which we have dealt with your case, details of the Ombudsman's complaints procedure can be found on our web site at www.ombudsman.org.uk.'

'I wish to complain about the assertion made by Mr. Comber in his E-Mail of 14/2 that my complaint was 'too far removed from your original complaint to be regarded as a mere amendment, and so falls to be considered as an entirely new complaint'. It should be evident that the two issues (the failure of the FSA to ensure that policyholders were notified of GAR liberalities during the demutualisation and the failure of the FSA to ensure that Scottish Widows had adequate provision for GAR liabilities before the demutualisation) are not only directly linked but one failure actually directly caused the other. For Mr. Comber to say that they are 'far removed' from one another is plain nonsense - it is a mere assertion that he does not explain or justify in any way. The question is 'If one directly caused the other, then how can they be 'far removed' from each other?'. You will need to ask Mr. Comber this question. Both issues concern the same thing - the failure of the FSA to monitor and act upon the adequacy of Scottish Widows GAR provisions. In fact the failure of the FSA to ensure that policyholders were informed of the true situation during the demutualisation was actually intended by the FSA to cover up their failure to ensure that Scottish Widows had adequate provisions with respect to GAR liabilities before the demutualisation. Mr. Comber's assertion can be equated to saying that if a man murders someone and then goes on to murder the only witness to the crime, that the second murder is not related to the first - but the second murder would not have taken place if the first murder had not taken place. So, we have two separate crimes (and I believe he FSA has acted criminally) but one causes the other - to say that they are unconnected is sheer nonsense. Mr. Comber's assertion is a lie and mere evasion.'

'Your letter of 23 April says you will provide me with regular updates. You have not done so. I take it that your promise was meaningless and that you had no intention of abiding by it at any stage. It does not exactly fill me with confidence when you cannot get the basics right.'

'I am writing with reference to your letter of 31st July. You have seriously misrepresented my complaint against the FSA. You say that my initial complaint concerned ‘the adequacy of information provided by Scottish Widows’ (with no reference to the FSA). This is false – and if it had been correct my complaint would have been outside the Ombudsman’s remit in any event, since it would have been a complaint against Scottish Widows rather than the FSA. In fact, my complaint concerned the failure of the FSA to ensure that Scottish Widows policyholders were adequately informed of the GAR situation during the demutualisation process; in other words it was a complaint concerned with the FSA’s failure to protect the interests of Scottish Widows policyholders with reference to GAR liabilities. My ‘amended’ complaint was concerned with (Guess what?) the FSA’s failure to protect the interests of Scottish Widows policyholders with reference to GAR liabilities. The only difference between my original complaint and the amended complaint being the timeframe [...], since my original complaint related to the FSA’s supervision of Scottish Widows during the demutualisation process and my amended complaint related to the FSA’s supervision of Scottish Widows generally, but including during the demutualisation process.'

'I am writing further to your E-Mail below and your letter to me of 31 July 2008 (copy attached) concerning what is clearly a very serious matter. In your letter you support the statement made by Andy Comber (copy attached) to the effect that my original complaint of 21 October 2006 (over two years ago) was outside the Parliamentary Ombudsman's jurisdiction because it concerned conduct of business regulation rather than prudential regulation. It is, however, clear that this is not true. The transfer of long term business, which is what the Scottish Widows demutualisation was, is covered by the Insurance Companies Act 1982 (which is why the demutualisation scheme had to be approved by the Court of Session in accordance with that Act) and, as the attached memorandum of your office dated September 2005 makes quite clear, prudential regulation is covered by the Insurance Companies Act 1982. Conduct of business regulation is covered by the Financial Services Act 1986 and is concerned with 'ensuring that the policyholder is advised to buy what the policyholder needs' (Penrose Report, Part 6, p. 540) see:

http://news6.thdo.bbc.co.uk/nol/shared/bsp/hi/pdfs/penrose_part6_opt.pdf

In addition, the article by the BBC at:

http://news.bbc.co.uk/1/hi/business/3451541.stm

explains that conduct of business regulation relates to 'the marketing and sale of [the] company's products.'

The distinction between prudential regulation and conduct of business regulation is therefore quite clear. It is also clear beyond doubt that my complaint concerned prudential regulation and was therefore within the Ombudsman's remit, contrary to what you yourself claimed.

I will be grateful for an explanation.'

'I acknowledge receipt of your emails of 22 and 23 January 2009 which have been added to your file. We will carefully consider the issues you have raised but if we do not feel that they cast doubt on our previous decision on your case, we will not send you a substantive response.'

'I am a reasonable man but it appears to be quite clear from the evidence that two members of the Ombudsman's Office, including a director, have deliberately lied in order to prevent a complaint being properly considered. I will be grateful if you can confirm that Ms. Auchterlonie has actually seen and read my last two E-Mails, with attachments. I must advise her that if I do not receive a response within 21 days, I shall refer the matter directly and personally to the Ombudsman and will take the matter further than that if necessary.'

'I am writing concerning complaint reference EN-34088/0081. It has become clear to me that two members of your staff, namely Andy Comber and Carol Auchterlonie, have deliberately lied to me in order to prevent my complaint being pursued. I wrote to Ms. Auchterlonie about this matter via E-Mail on 22 January (see below) and, beyond receiving an acknowledgement, I have received no reply. I am now referring the matter to you and look forward to hearing from you.'

'I am writing concerning complaint reference EN-34088/0081. It has become clear to me that two members of your staff, namely Andy Comber and Carol Auchterlonie, have deliberately lied to me in order to prevent my complaint being pursued. I wrote to Ms. Auchterlonie about this matter via E-Mail on 22 January (see below) and, beyond receiving an acknowledgement, I have received no reply. I am now referring the matter to you and look forward to hearing from you.'

20. Referral to Institute of Chartered Accountants in England & Wales (ICAEW) (Top of page)

Section summary: Next summary Previous summary

Complaint against Martyn Scrivens

The person who dismissed me in December 2003 was Martyn Scrivens, Director of Group Audit, Lloyds TSB, who is a Chartered Accountant (i.e. a member of the ICAEW). Chartered Accountants are bound by the standards (rules of professional conduct) of their professional body (the ICAEW in this case) and are subject to disciplinary proceedings by their professional body if they fail to observe those standards. The ICAEW has 5 fundamental principles of professional ethics, which are integrity, objectivity, competence, performance (i.e. due skill and care) and courtesy, although there are also, of course, voluminous rules covering specific areas of conduct. There is no doubt that a member who deliberately victimizes a whistleblower, because he is a whistleblower, is breaking the most important principle, integrity, apart from anything else. There is no doubt that someone who is prepared to sack a whistleblower on account of their whistleblowing is unfit to be a member. Anyone considering the detailed evidence that I have put forward in this paper can have no doubt that I was victimised on account of whistleblowing; the reasons including (1) the fact that my management refused to investigate my concerns even though I was, as they knew, acting on the advice of the Ethics Advisory Service of the Institute of Chartered Accountants in England and Wales, (2) the fact that the bank's disciplinary procedures were wilfully ignored both before my suspension or afterwards, (3) the fact that I was suspended on the basis of a series of allegations (some clearly preposterous) which were later proved to be unfounded by the bank's own investigation (including the fact that I had reported the matter to the external auditors) and (4) the fact that I was suspended so soon after I had reported my concerns to the external auditors. More than that, the prima facie evidence (the seriousness of the matter, the nature of the allegations, the failure to follow the bank's disciplinary procedures) should have 'sounded alarm bells' to anyone aware of the basic facts - certainly sufficient to make someone say 'Hold on a minute! I need to get to the bottom of this.' before they actually sack someone. The truth is therefore clear. Martyn Scrivens sacked a whistleblower because, when it came to the point, he not only lacked the moral courage (i.e. the integrity) to do what he knew to be right (that is, to protect a whistleblower who was being victimised), but he also chose to protect the company (and therefore his own interests) rather than do what he knew to be right; so greed (self-interest) AND cowardice. The fact that I am also a Chartered Accountant makes the crime doubly worse. The fact that I had become a whistleblower on the advice of the ICAEW's own Ethics Advisory Service makes it triply worse.

I complained to the ICAEW on the basis that Martyn Scrivens had (1) victimised a whistleblower and that he had (2) failed to investigate my concerns about Scottish Widows properly.

The ICAEW dismissed my complaint of victimisation on the basis that it was a matter reserved to employment tribunals or the courts; that is, they were UNABLE to investigate (i.e. legally prevented from investigating) my complaint because it was outside their jurisdiction. When I asked them to explain how the matter was reserved to employment tribunals or the courts, a simple and reasonable question, they refused to explain and then, shortly afterwards, refused to correspond further on the matter. This assertion is a straight lie.

With regard to my complaint that Martyn Scrivens failed to investigate my concerns properly, the internal investigator, Ray Farren of the Professional Conduct Directorate, initially said 'the question of whether the conduct of Mr. Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider', except that, in this case, the directors themselves appeared to have committed a criminal offence - so would they insist that Martyn Scrivens investigate their own misdemeanours? But even if the directors themselves were not involved the ICAEW cannot absolve itself of its responsibility to investigate a prima facie breach of its own rules. Really, the nonsense, the puerility of it! When the matter was eventually considered by the Investigation Committee (18 months after my initial complaint), they concluded that 'Mr. Scrivens made every reasonable effort to satisfy himself that your concerns had been investigated and also as to whether or not they could be substantiated'. This means that the Investigation Committee considers it reasonable to fire one of your own staff where (1) an internal investigation has found that there were no grounds for disciplinary proceedings, (2) the company rules specifically forbid sacking someone in such circumstances, (3) you have not talked to the employee concerned, (4) you have allowed management to act as accuser, judge and jury and (5) you have relied on statements from the auditors, who, as any half-competent accountant or auditor should have seen, had every motive to conceal their failure to qualify the accounts of Scottish Widows on the basis of a huge financial black hole in their books, which we know for a fact existed and which we know for a fact that they didn't mention in their audit report.

Complaint against PricewaterhouseCoopers

Complaint 1 - about PwC's failure to qualify the accounts of Scottish Widows for 1998 and 1999 in respect of GAR liabilities

On 23 November 2007 I made a complaint to the ICAEW against PricewaterhouseCoopers on the basis that (1) PwC acted as auditors of Scottish Widows for the year ended 31 December 1998 and 31 December 1999, (2) Scottish Widows had a contingent liability of about GBP1.5 billion in respect of GAR policies at those dates,(3) PwC either were or should have been aware of the existence of that contingent liability and, if they were not aware, were negligent in that regard, (4) the contingent liability was material in the context of the accounts and was not a remote contingency. and (5) PwC failed to ensure that this contingent liability was properly disclosed in the Accounts of the company. I later extended my complaint to cover PwC's failure to qualify the accounts of Lloyds TSB for 1999, 2000 and 2001 in respect of this GAR liability. The ICAEW dismissed my complaint on various grounds, described below (the arguments are too detailed to describe here), overlooking the rather obvious point that their own Joint Disciplinary Scheme (JDS) were in the middle of investigating Ernst & Young's failure to qualify the accounts of Equitable Life for, inter alia, the years 1998 and 1999, and that the prima facie cases against both Ernst & Young and PricewaterhouseCoopers were IDENTICAL (failure to qualify the accounts of a life company for 1998 and 1999 in respect of GAR liabilities); it is impossible to justify not investigating one where you have accepted that there are grounds for investigating the other (but the ICAEW will give it a go!). So, all their squirming and evasion, half-truths and downright lies are exposed as such.

Note that the reasons given by the ICAEW for dismissing my complaint were totally different from the reasons given by the AIDB for dismissing the SAME complaint made to them.

In June 2010 the Joint Disciplinary Tribunal issued its report on Ernst & Young's conduct as auditors of Equitable Life. Essentially their findings amounted to no more than a slap on the wrist of no deterrent value whatsoever. The Tribunal had engaged in a damage limitation exercise designed to protect the accountancy 'profession' and the big firms. Of course this was what was also behind the 10 year delay in issuing their findings in the first place. No honest, reasonable person can doubt this - but if you have any doubts just read the next paragraph.

One interesting point about the findings was that the Tribunal refused to attach any weight to the opinions of the expert engaged by Executive Counsel (in effect the prosecutor) on the basis that he (the expert) did not have sufficient experience of the life industry (see annex 5 of the JDS report dated 9/1/2008), although he was a very experienced chartered accountant and a senior partner of a major firm, but, at the same time, they said, in the same report (para 35), that the defendants were 'to be judged by the standard of competent auditors at the material time and if competent auditors did not understand the implications of exposure to GARs ,[the defendants] are not to be judged by a higher standard.' Hmmmmm. If the defendants are to be judged by the standards of an ordinary competent auditor then let an ordinary competent auditor give his opinion on the matter (note that the tribunal did not dismiss themselves on the basis that they were not experts in the life industry). How can the opinions of such an auditor be deemed to be somehow insufficient given that the Tribunal itself has ruled that it is by his standards that the defendants are to be judged? Who better to apply the standards of any ordinary competent auditor than an ordinary competent auditor? Tricky one that. Well, of course it is a whole load of nonsense but the Tribunal evidently hoped that no-one would pick up this little point given that they had adopted the usual trick of writing such a long report (371 pages) that no-one - or almost no-one - would see the wood for the trees. This single issue exposes the whole report as a complete fraud. Mumbo-jumbo - nothing more, nothing less.

One significant finding (in the Supplementary Appeal Report dated 2 June 2010, para 57) was that E&Y were 'seriously at fault in sanctioning non-disclosure [of the GAR liability] in the absence of specific and unambiguous legal advice that such a course was justified within the meaning and for the purposes of FRS 12.' In other words, Ernst & Young should have qualified Equitable Life's accounts in the absence of specific legal advice to the contrary.

In the context of my complaint to the ICAEW about PricewaterhouseCoopers' conduct as auditors of Scottish Widows, with particular reference to the GAR issue of course, the question immediately arises: 'Well, if Ernst & Young were at fault in not qualifying the accounts of Equitable Life as a result of the GAR issue in the absence of specific legal advice to the contrary, were not PricewaterhouseCoopers equally at fault in not qualifying the accounts of Scottish Widows as a result of the GAR issue in the absence of specific legal advice to the contrary?' It is an obvious question with an obvious answer.

The critical point to note is that the 2010 finding of the Joint Disciplinary Tribunal against Ernst & Young to the effect that they should have qualified Equitable Life's accounts for 1998 in respect of GAR liabilities directly contradicts the ICAEW's Investigation Committee's 2009 finding, in relation to my complaint, that PwC had no reason to qualify Scottish Widow's 1998 accounts in respect of their GAR liabilities. In other words we have exactly opposite findings in relation to two identical sets of circumstances, the existence of huge GAR liabilities in two large life companies at the same time. Plainly, the ICAEW's Investigation Committee are a bunch of liars.

In June/July 2010 I put this question to the ICAEW as an important new issue relating to my complaint against PricewaterhouseCoopers arising out of the Tribunal's recent report (i.e. it was a significant new matter) but their response was say that, in effect, 'since you have raised nothing new(!), we are just going to file your letter'. Well, if they want to dig a hole for themselves...

Of course, PricewaterhouseCoopers were not the only other auditors who should have qualified the accounts of life companies at that time. The Parliamentary Ombudsman's report (Equitable Life: a decade of regulatory failure - Part One: main report, para. 74) revealed that, at the relevant time (essentially 1997 and 1998), 8 other life companies 'gave general cause for concern' in relation to their ability to meet their GAR liabilities and one other company was 'of particular concern'. Again, if Ernst & Young should have qualified the accounts of Equitable Life in the absence of specific legal advice to the contrary, surely the auditors of the other 9 life companies should have done the same? In short, it is blindingly obvious that the ICAEW should investigate the auditors of all these 9 other life companies who failed to qualify the accounts of those companies at the relevant time. Are there prima facie grounds for an investigation or not? The ordinary, reasonable 'man in the street' will give you a plain answer to that question.

On 26 July 2010 I made a new complaint to the ICAEW about this matter. In view of their previous dismissal of my concerns about PricewaterhouseCoopers arising out of the Tribunal's findings, I informed them that if they did the same with this new complaint that I would take them to court (i.e. seek a judicial review of their dismissal of my complaint). As at the time of writing (28 July 2010) I have had no response from the ICAEW.

Complaint 2 - about PwC's failure to qualify the accounts of Lloyds TSB in respect of its exposure to toxic debts (including sub-prime loans)

On 25 November 2008 I made a further complaint to the ICAEW about PricewaterhouseCoopers. The background to this complaint was the banking crisis in the UK and the fact that it had become evident that the auditors of the UK banks had failed to qualify the accounts of those banks in respect of the uncertainties regarding the valuation of the complex and dodgy instruments (i.e. valueless assets/toxic debts) that were sitting in the balance sheets of those banks, which instruments had been dreamt up by those banks as a means of earning short-term profits and therefore fat bonuses for themselves. The wholesale failure of ALL the auditors of these banks to warn the banks' shareholders about what was going on is a scandal of such proportions that it can only lead one to conclude that the entire auditing profession in the UK is, to all intents and purposes, a complete waste of time - a giant sham. When the going gets tough they duck down behind the parapet, cross their fingers and hope they won't be found out not doing what they ought to be doing (i.e. warning the shareholders).

In brief, the Investigation Committee of the ICAEW rejected my complaint on the basis that I had supplied 'no specific evidence' to indicate that the auditors should have been aware of a material overvaluation of the company's assets at the date the audit report was issued (21 February 2008). This is the classic 'We will not carry out an investigation to obtain the evidence - which is what investigations do - until you provide the evidence first' and ignores the fact that the whole purpose of an 'Investigation Committee' is to (guess what?) carry out investigations to (guess what?) find the evidence. The key point is that there was strong prima facie evidence to justify an investigation - unless the Investigation Committee considers a GBP17 billion bail-out of Lloyds TSB by the taxpayer, a £1.2 billion write-off in Lloyds TSB's own accounts due to 'market dislocation' (i.e. 'we took a gamble on the markets with your money and lost') and the evidence of the UK Shareholders' Association to the Treasury Select Committee specifically about Lloyds TSB (which proved that Lloyds TSB had lied when they claimed that they only needed financial assistance as a result of their takeover of HBOS) to be no indication of any wrong-doing (literally, they are saying that there is no indication whatsoever of any possible shortcoming on the auditor's part). Seriously? If there is such a huge problem is it not reasonable, natural and just to ask why the auditors apparently didn't notice it, that they were simply not aware at all of a high risk culture leading to high risk debts which, as was clearly demonstrated afterwards by an official enquiry (of the Treasury Select Committee), everyone knew existed? Fact. There was a high risk culture which everyone knew about which led to losses of billions of pounds. Question. Were the auditors not aware of this high risk culture? And if not, why not? To you and me these are reasonable questions. To the Investigation Committee of the ICAEW (such a grand title!) there is no indication whatsoever of any problem at all. What is our response to that? It's 'Pull the other one, you scumbags!'

Next summary Previous summary

Section detail:

On 6 September 2004 I made a formal complaint (ICAEW ref: 66818) against Martyn Scrivens, Director of Group Audit, to the Professional Conduct Directorate of the Institute of Chartered Accountants (ICAEW), of which Martyn Scrivens is a member. There were two elements to my complaint:

a). Martyn Scrivens never asked to talk to me directly;

b). Martyn Scrivens cannot have obtained a sufficient explanation of my concerns from my management (for the purposes of sacking someone - but management were aware of the nature and seriousness of my concerns) because the only time that I had discussed my concerns with my management was at the initial meeting with Roger Cooper in 2002 (see section 9. above) when I had only explained my concerns in outline and had not referred to detailed evidence, such as the Demutualization and Transfer Policyholder Circular of 19 November 1999;

c). Martyn Scrivens relied on the unsupported verbal assertions of the external auditors, PricewaterhouseCoopers, when he should have considered the fact that PricewaterhouseCoopers had issued an unqualified audit report on the accounts of Scottish Widows for the year ended 31 December 1998 (i.e. it made no mention of the contingent liability of GBP1.5 billion) and that this was in spite of the fact:

i). that Equitable Life had announced its plans to cut bonuses on GAR policies in January 1998;

ii). that on 9 September 1998 Ernst & Young (Equitable Life's auditors) had discussed the implications of this decision at a meeting with Equitable Life and that a potential exposure in respect of GAR policies of up to GBP1.5 billion had been identified at that meeting;

iii). that if Ernst & Young were aware of a contingent liability on the part of their audit client, Equitable Life, in September 1998 then PricewaterhouseCoopers should also have been aware of a contingent liability of a similar nature on the part of their audit client, Scottish Widows, at the same time. Note, in this context, that the Penrose Report revealed that the GAR issue was an industry-wide problem by November 1997 (Penrose Report, Part 4, Ch. 12, para. 8, p. 380);

iv). that the Equitable Life court case started with an originating summons in the High Court on 15 January 1999 before PricewaterhouseCoopers' audit of the 1998 accounts of Scottish Widows can possibly have been concluded (in fact the audit opinion in the 1998 accounts is dated 2 March 1999, almost two months later), meaning that the GAR issue was in the public domain before PricewaterhouseCoopers 'signed off the accounts'. Note also that the audit report on the 1999 accounts is dated 16 February 2000, the month after the Court of Appeal ruling in the Equitable Life case, at which point, according to the ruling, the GBP1.5 billion GAR liability crystallised into an actual liability (but, incredibly, still no mention in the accounts);

v). that the fact that the directors of Equitable Life considered it necessary for the GAR issue to be determined by the courts clearly demonstrates that they did not consider the likelihood of the crystallization of that liability to be 'remote' (logically if they had obtained legal advice to the effect that the crystallization of the liability was a remote possibility, which is the only situation when material contingent liabilities do not have to be disclosed in the accounts, then the matter would not have been taken to court);

vi) that, in any event, the fundamental accounting principle of prudence (combined with the significance of the matter i.e. in plain language, if the liability crystallised then Scottish Widows was bust) should have led PricewaterhouseCoopers to ensure that the existence of this GBP1.5 billion contingent liability was brought to the attention of policyholders in the 1998 accounts. The critical question here is whether the policyholders, as owners of the business, would have been happy for the auditors not to tell them of such a thing (would you, as the owner of a business run by others, a board of directors, be happy if the auditors did not tell you of the possible bankruptcy of that business? It's a simple question - with a simple answer. More worrying, would you be concerned if, in spite of the myriad of standards and rules churned out by the accounting/auditing profession, the auditors can not tell you about such a matter and get away with it?);

vii). that in view of the above and the fact that these contingent liabilities later crystallised, there were (and are) possible grounds for a legal claim against PricewaterhouseCoopers on the basis that they should have qualified the 1998 accounts (and the 1999 accounts of course, but that's another issue) of Scottish Widows (Equitable Life actually sued Ernst & Young over the GAR issue in February 2003, some 4 months after I first reported the matter to PricewaterhouseCoopers and fully 10 months before I was sacked; thus Martyn Scrivens should have been 'put on enquiry' by the fact that Equitable Life were suing Ernst & Young over the GAR issue - but the 'little grey cells' moved not a millimetre - apparently) and that, for this reason, Martyn Scrivens should have considered the possibility that PricewaterhouseCoopers were unlikely to say anything that could be taken as an admission of liability on their part. On this basis it was incumbent on Martyn Scrivens to obtain further evidence from other sources.

viii). That if the facts were sufficient to cause concern on my part as to PricewaterhouseCoopers' independence then they were certainly sufficient to do the same for Martyn Scrivens.

20.1 My complaint of victimization (Top of page)

With respect to my complaint of victimization, the Investigation Committee (who eventually considered the matter on 5 July 2005, some 10 months later) declined to pursue my complaint on the grounds that it was effectively an allegation of unfair dismissal and that such matters are 'reserved' to Employment Tribunals or the Courts, that is outside the ICAEW's jurisdiction, that is the ICAEW cannot investigate such matters. What I actually complained of was that Martyn Scrivens conduct amounted to 'victimization of another Chartered Accountant who had raised valid concerns in a proper manner as recommended by the Ethics Advisory Service [of the ICAEW]'; there was no mention of unfair dismissal though I did say that I had been sacked in clear breach of the bank's own rules. The Investigation Committee's argument runs (if you can follow the 'hall of mirrors' logic) that if the matter is outside the ICAEW's jurisdiction then Martyn Scrivens is not liable to disciplinary action under ICAEW rules. If Martyn Scrivens is not liable to disciplinary action under the ICAEW rules then this means that there is no indication that Martyn Scrivens 'may have become liable to disciplinary action' under section 9.3 of the ICAEW's Disciplinary Bye-laws* and so the Investigation Committee ruled that my complaint was technically not a complaint at all! This neatly prevents my complaint being referred to the independent Reviewer of Complaints, for example, since if something is not a complaint it cannot be referred to the Reviewer of Complaints!

The question, as far as I can see, is a very simple one, namely 'Is it against ICAEW ethical principles to victimize a whistleblower? Yes or No?' If the answer is 'Yes' then the ICAEW should investigate the matter.

*Bye-law 9(3) states that 'In these bye-laws any facts or matters which -

(a) have come to the attention of the head of staff under paragraph (1) or otherwise and

(b) indicate that a member, a firm or a provisional member may have become liable to disciplinary action under these bye-laws or the Investigation and Discipline Scheme or the Joint Disciplinary Scheme,

are referred to as a "complaint".'

20.2 My complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization (Top of page)

With respect to my complaint that Martyn Scrivens had failed to properly investigate my concerns about the Scottish Widows demutualization, Ray Farren, of the Professional Conduct Directorate, wrote to me on 21 September 2004 that 'the question of whether the conduct of Martyn Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider'. I replied in an E-Mail dated 10 February 2005 that:

'Your second point that 'the question of whether the conduct of Martyn Scrivens is wanting in the handling of this issue is a matter for the board of directors to consider' is nothing short of preposterous since the matter which Martyn Scrivens failed to investigate is a misdemeanour (and possible criminal offence) by the directors themselves. The directors are hardly likely to insist that Martyn Scrivens investigate their own misdemeanours!'

The matter was not considered by the Investigation Committee at their meeting on 5 July 2005 but was withdrawn due to 'clarification of a procedural issue'. After I had made further submissions I was eventually informed in a letter dated 21 March 2006 (18 months after my initial complaint) that the papers were about to be prepared for submission to the Investigation Committee.

20.3 Complaint 1 to the ICAEW against PricewaterhouseCoopers (ref 75253) (Top of page)

Scottish Widows 1998 accounts

Ray Farren pointed out that the accounts had been signed off on 2 March 1999, 'only six weeks after the originating summons [in the Equitable Life case]' and that 'as the action was in a very early stage I do not believe that without hindsight there was a sufficient basis to compel the company to conclude that a contingency note about the guaranteed annuity return exposure was necessary.'

[See my letter of reply dated 2 February 2000 below.]

Scottish Widows 1999 accounts

'The 1999 accounts show that the audit report was signed on 16 February 2000 and, as you state in your email, the Court of Appeal ruled on the Equitable Life case on 22 January 2000. Whilst you believe there should have been a contingency note, having read the financial statements for the year ended 31 December 1999, then it would appear that although the words 'guaranteed annuity' have not been used, provision appears to have been made for the liability.

[If the GAR liability had been provided for as at 31 December 1999 then there would have been no need to set up the Additional Account at all. In other words, if Scottish Widows HAD provided for the GAR liability as at 31 December 1999, why did they need to get court approval for setting up the GBP1.5 billion 'Additional Account' in February 2000? And if the GAR liability had been provided for as at 31 December 1999, then Lloyds TSB had no reason to later use the Additional Account to cover the GAR liability. So, if what Ray Farren says was true then Lloyds TSB STOLE the Additional Account from the policyholders because they used the Additional Account to meet the GAR liability when they had already provided for that liability by 31 December 1999! Now we have determined that the GAR liability was NOT provided for as at 31 December 1999, we get back to the question of whether it should have been provided for and, if not, whether the GAR liability should have been disclosed as a contingent liability, which question Ray Farren did not address (because he had concluded that it was provided for). This just demonstrates the utter rubbish that the ICAEW will produce in order not to investigate a very serious matter. See also my letter of reply dated 2 February 2000 below.]

[NOTE ALSO THAT RAY FARREN'S CLAIM THAT THE GAR LIABILITY WAS PROVIDED FOR AS AT 31 DECEMBER 1999 IS CONTRADICTED BY THE ICAEW'S OWN ASSESSOR - SEE LETTER OF 4 MARCH 2008 BELOW.]

I base this conclusion on the following.

1. On page 10 of the annual report within the Chairman's Statement there is a comment on guaranteed annuities and towards the end of the second paragraph I read:

'We are satisfied that our position on guaranteed annuities is fully in accordance with the contract terms of these policies.

All of the guarantees, whether pension or cash, give rise to liabilities which increase from year to year as bonuses are added. It is, therefore, critical that a company has the assets to meet its liabilities. Scottish Widows clearly has the assets to meet all its liabilities, including those in respect of guaranteed annuities. Furthermore, assets are held in such a way that they are well matched to the underlying annuity guarantees.'

2. Accounting policies, page 37.

'Fund for future appropriations.

The fund for future appropriations comprises assets which are in excess of the levels allowed for in the technical provisions.'

Technical account, page 38.

'The transfer to the fund for future appropriations is £1.9 billion, a marked increase over the previous year of £361 million.'

On that basis, therefore, I am unclear as to why a contingency note on the guaranteed annuities would be required as there appears to be sufficient information to indicate that the current obligation under the GARS is provided for. I, therefore, do not agree that a contingent liability note is required.'

Lloyds TSB 2000 accounts

'Following the acquisition by Lloyds TSB of Scottish Widows, note 49 on pages 74 and 75 deals with the acquisition of Scottish Widows and it would appear that the provisions for future appropriations are reversed as part of the fair value adjustments. However, in the final paragraph of column 1 it states:

'Under the terms of the transfer of Scottish Widows' business, as set out in the policy holder circular dated 19 November 1999, a separate memorandum account was created within the With Profits Fund on 3 March 2000 called the additional account with a balance of £1.7 billion. This account included £1.3 billion which is available to meet any additional costs of meeting guaranteed benefits including annuity benefits on transfer policies allocated to the With Profits Fund and any unexpected liabilities which arise in the future but relate (with certain exceptions) to the operations of Scottish Widows and its subsidiaries prior to 3 March. The assets allocated to the additional account includes certain hedged assets which are intended to protect the With Profits Fund against the consequences of a future fall in interest rates, including increases in the costs of meeting policy guarantees.'

[Saying that an amount is available to meet a contingency does not equate to saying that there is a contingency. Note the use of the word 'any'. Was there a contingent liability or wasn't there? It's rather like saying 'I am wearing this bullet-proof jacket in case someone fires a gun at me.' IMPORTANT QUESTION! 'Is someone pointing a gun at you?']

Again, it would appear that the potential liability is provided for within the accounts and, therefore, I do not believe a separate contingency note is appropriate.

Conclusion

Overall. therefore, I do not believe there is sufficient evidence to indicate that the audit reports issued by PricewaterhouseCoopers on these financial statements is inherently incorrect in failing to qualify the opinion for lack of disclosure of a contingency for the GAR.

'I have been asked to review the assessment made by Mr Farren regarding the complaint received from Mr G Senior-Milne against PricewaterhouseCoopers who acted as auditors of Scottish Widows for the years ended 31 December 1998 and 31 December 1999 and produced group accounts for Lloyds TSB for the year ended 31 December 2000. Mr Senior-Milne's complaint is that PwC should have been aware of the contingent liability in respect of guaranteed annuity returns; that the contingent liability is material, not remote, and a note should have been made in the accounts. Unqualified audit opinions have been given in respect of Scottish Widows' audit and in respect of Lloyds TSB group accounts Mr Senior-Milne believes that a separate contingency note should be disclosed in the accounts.

Mr Senior-Milne relies upon the fact that Ernst & Young and the directors of Equitable Life were 'aware' of the problem in 1998 and, therefore, the directors of Scottish Widows and, therefore, PricewaterhouseCoopers should also have been aware of Scottish Widows' exposure at that time.

Furthermore, the EL court case should have 'set alarm bells ringing' for PwC and SW. Mr Senior-Milne says the EL directors would not have taken their case to court if they thought the chance of the contingency crystallising was remote.

I understand from Mr Senior-Milne's website that the EL court case was determined on 20 July 2000 when EL was told to meet the liabilities of the GAR holders in full.

The argument therefore seems to hinge on when SW's liability became more than 'remote'. If, at each year-end, there was only a less than remote probability that SW would have to transfer economic benefits to the GAR holders then no disclosure is required.

1998 accounts

FRS 12 came into effect for periods ended on or after 23 March 1999, and it does not appear from the 1998 accounts that SW adopted it early.

The only evidence put forward is that the EL originating summons to the High Court was dated 15 January 1999, and therefore, per Mr Senior-Milne, there was more than a remote chance that both EL and SW would have to pay the shortfall on their GAR policies.

However, the action did not come to trial until 5 - 7 July 1999, and EL won the first stage of the action. It was only on appeal that the policyholders won, leading to the House of Lords decision, in July 2000, to make the £1.5bn payout.

At the time of approving the1998 accounts (2 March 1999) the EL case was at an early stage, and had not yet gone to Court. There is insufficient evidence to compel the directors to disclose the issue, and, using the FRS 12 terminology, the probability of 'transfer of economic benefit' was remote; the EL action had not come to trial on 2 March 1999, and the court summons was only six weeks old.

[The point here is that the matter would have not gone to court at all if the directors of Equitable Life had been advised by their legal advisors that there was only a remote possibility that the company would have to meet its GAR liabilities in full, which means, in turn, that the fact that the matter did go to court meant that the directors and their legal advisors considered that there was more than a remote possibility that the liability would crystallise. And if the directors of Equitable Life considered that there was more than a remote possibility that the liability would crystallise then they were required (under Financial Reporting Standards] to disclose the contingent liability in the accounts. And what applied to Equitable Life also applied to Scottish Widows. Ergo, Scottish Widows should have disclosed the contingent liability in their 1998 accounts and PricewaterhouseCoopers should have qualified those accounts when they didn't. So all this nonsense about the Equitable Life case being at an early stage is irrelevant; the critical thing was that the case had been started at all. That was enough. More rubbish from the ICAEW.]

1999 accounts

By 31 December 1999 the court had found in favour of EL, but on 20 January 2000 the court of appeal reversed the decision. EL appealed to the House of Lords, but the Court of Appeal decision was upheld on 20 July 2000. SW's 1999 accounts were approved on 16 February 2000.

SW could easily have taken the view that the outcome of the EL case was far from certain as the Court of Appeal had overturned the original decision, and that was all still subject to the House of Lords hearing.

The 1999 accounts include, on page 10, a paragraph entitled 'guaranteed annuities'. This paragraph does not include numerical disclosures and states that all the guarantees give rise to liabilities which increase from year-to-year and therefore it is critical that SW has enough assets to meet its liabilities. The statement also states that SW does have sufficient assets. Mr Senior-Milne argues that this disclosure is meaningless and makes no mention of the quantum of the alleged contingent liability. Under FRS 12 it is permissible to disclose details of contingencies without mentioning the quantum if the quantum cannot be measured.

I also note that on pages 3 and 4, under the heading of 'bonuses' it states that under the terms of the merger with Lloyds TSB, the holders of the 'with profits' policies would be receiving higher terminal bonuses than would have been the case had the merger not happened. Based on estimated values at 31 December 1998, this amount would have been £1.3 billion. This appears to be the 'additional account' referred to in Mr Senior-Milne's correspondence. The additional account includes the additional costs of meeting guaranteed benefits and any unexpected liabilities which may arise in the future.

There was still sufficient uncertainty and confusion at the time (with the original Court finding in EL's favour, and the Court of Appeal finding against EL) for SW to have been compelled to make any greater reference to this issue than that on pages 3-4 and 10 of the 1999 accounts. I do not believe that, at the time the 1999 accounts were approved, there was a requirement to provide for this amount because the final judgment on the EL case had not been made.

[Note that this directly contradicts what Ray Farren said in his letter of 28 December 2007, where he asserted that the GAR liability had been provided for. The assertion that there was 'sufficient uncertainty and confusion' about the Equitable Life case at the time for Scottish Widows NOT to either provide for the GAR liability or disclose it as a contingent liability is sheer nonsense. When the second highest court in the land has ruled that a liability exists, the fundamental accounting convention of prudence DICTATES that you provide for it. Has the ICAEW heard of prudence? More rubbish from the ICAEW.]

2000 accounts

By the end of 2000 the liability had been provided for, and therefore the item is no longer a 'contingency'.

Note 49 on page 75 states that the Additional Account, with a balance £1.9bn was created on the acquisition of SW by Lloyds TSB. Of this balance, £1.3bn relates to any additional costs of meeting guaranteed benefits, including annuity benefits on transferred policies and for any unexpected liabilities which arise in the future.

In my opinion it is clear that the Group expects the £1.3bn will be the estimate, at 31 December 2000, of the cost of meeting these additional liabilities and no additional contingency note is required in 2000.

Additionally, I do not believe the figure of £1.5bn is material to the assets/liabilities of Lloyds TSB (of £218bn at 31 December 2000).

I should be grateful if you would advise Mr Senior-Milne of my opinion, by way of supplying him with a copy of this memorandum should you so wish.'

[Saying that GBP1.3 billion 'relates' to GAR liabilities is misleading. What the note actually said was that the GBP1.3 billion was 'available' to meet any additional costs of meeting guaranteed benefits. 'Relates' implies that the amount has been specifically set aside to meet the liability; 'available' does not mean that at all (Boy! You have to be careful with these people!). And, as I have said above, saying that an amount is available to meet a contingency does not equate to saying that there is a contingency. Note the use of the word 'any'. Was there a contingent liability or wasn't there? Put simply, by reading these accounts you don't know. How can that amount to adequate disclosure? More rubbish from the ICAEW.]

[With regard to the question of materiality, the point here is that Scottish Widows/Lloyds TSB misled the policyholders into believing that the GBP1.5 billion in the 'Additional Account' would be paid to them and the policyholders approved the demutualisation on that basis. Therefore, Scottish Widows/Lloyds TSB owes the policyholders the GBP1.5 billion it led them to believe it would pay to them; this would be a charge in the profit and loss account, so the materiality of the GBP 1.5 billion needs to be considered in the context of the profit before tax for the year of GBP3.5 billion and not the balance sheet total of GBP219 billion. More rubbish from the ICAEW.]

'I refer to your E-Mail of 4/3/2008 and the attached review by the assessor. I understand that a complaint can be reconsidered if significant new evidence comes to light. With regard to the 1998 accounts of Scottish Widows there are two significant points. The first is that the assessor says that FRS 12 only came into force on 23 March 1999. Was the assessor unaware of FRS 12's predecessor, SSAP 18? Such an oversight would be remarkable. In the second place (it has come to my attention that the Penrose Report (Part 4, Ch. 12, para. 8, p. 380) says that the GAR issue was an 'industry-wide issue' by November 1997 and PwC should certainly have been aware of the GAR problem on this basis. These facts provide prima facie evidence sufficient to indicate that PwC may be liable to disciplinary action; that is, there is sufficient evidence to justify an enquiry. The assessor states that 'there is insufficient evidence to compel the directors to disclose the issue' but you do not know what evidence there is until you carry out an enquiry. This is like saying 'We can't get the evidence until we investigate it and we won't investigate it until we get the evidence.'

The Penrose Report is at:

http://news.bbc.co.uk/1/hi/business/3543549.stm

I would remind you, in this context, that the JDC is carrying out an enquiry into Ernst & Young's failure to qualify the 1998 accounts of Equitable Life and that the circumstances of both E&Y/Equitable Life and PwC/Scottish Widows are exactly parallel in that they both relate to the failure of auditors to qualify the 1998 accounts of life companies in respect of GAR liabilities.'

'The file was closed and has been put into storage and I have today requested that it be retrieved.

I will respond after I have reviewed the file in the context of the information in your email.'

'Further to your email of 12 February 2009, and your reminder dated 2 March 2009, the file has been brought back from storage and I have now had an opportunity to review the contents.

Your reference to 'I understand that a complaint can be reconsidered if significant new evidence comes to light' is not relevant to this complaint as it has been closed in Assessment without reference to the Investigation Committee and, therefore, the Institute's internal processes are not exhausted.

The Principal Assessor's review does refer to FRS 12, but the considerations relating to the 1998 accounts do indeed take into account SSAP 18 whilst referring to the terminology of FRS 12.

The Penrose Report part 4, chapter 12, para 8, page 380 does indeed refer to 'discussions that reviewed approaches to managing annuity guarantees' but I do not believe this adds any more to what we have already considered. In addition to the comments in my letter dated 28 December 2007, there is reference in 31 December 1998 Scottish Widows accounts relating to the same accounting policy notes that were found in 31 December 1999 accounts relating to the accounting policies with respect to fund for future appropriations and the technical accounts.

I, therefore, remain unconvinced that there is any disciplinary interest in this matter for the Institute.

With respect to the way forward, then your options are as outlined in my last email to you on file reference 78497.'

'If the matter can be referred to the Investigation Committee then I would like to be referred.

Your statement that 'the Principal Assessor's review does refer to FRS 12, but the considerations relating to the 1998 accounts do indeed take into account SSAP 18 whilst referring to the terminology of FRS 12' is nonsense. The assessor was clearly saying that I had referred to FRS12 and that FRS12 did not apply because it was not then in force. There is absolutely no reference of any sort to SSAP 18. [i.e. Ray Farren was simply lying]

You selectively quote the Penrose report. That report clearly states, at the reference I gave, that the GAR issue was an industry-wide problem by late 1997. Saying that you do not believe that 'this adds any more to what we have already considered' is simply an unsupported assertion. It is also plain nonsense, since Penrose makes it quite clear that PwC should have been aware of the GAR issue in 1997 whereas the assessor response to my complaint says the opposite. In other words, the Penrose report quite simply and clearly contradicts what the assessor said.'

'The firm failed to qualify the 1998 and 1999 accounts of Scottish Widows in respect of a material contingent GAR liability of £1.5 billion (which later crystallized) and that they should have done so in the absence of specific legal advice to the contrary, as per paragraph 57 of the Supplementary Appeal Report dated 2/6/2010 in response to the complaint against Ernst & Young in relation to its conduct as auditor of Equitable Life.'

This complaint was made on the basis that the report of the Joint Disciplinary Tribunal (JDT) on its investigation into complaints made against Ernst & Young in respect of its audit of the accounts of Equitable Life and their failure to qualify those accounts on account of GAR liabilities contained critical new material that was relevant to my complaint against PwC. This critical new material was the finding (in the Supplementary Appeal Report dated 2 June 2010, para 57) that E&Y were 'seriously at fault in sanctioning non-disclosure [of the GAR liability] in the absence of specific and unambiguous legal advice that such a course was justified within the meaning and for the purposes of FRS 12.' In other words, Ernst & Young should have either ensured that the GAR liability was disclosed in Equitable Life's accounts or qualified those accounts in the absence of specific legal advice to the contrary (i.e. advice to the effect that disclosure was unnecessary). The question immediately arises: 'Well, if Ernst & Young were at fault in not qualifying the accounts of Equitable Life as a result of the GAR issue in the absence of specific legal advice to the contrary, were not PricewaterhouseCoopers equally at fault in not qualifying the accounts of Scottish Widows as a result of the GAR issue in the absence of specific legal advice to the contrary?' It is an obvious question with an obvious answer.

'I would draw your attention to Mr Farren's email dated 3 November 2009 timed at 15:35 in which he writes (third paragraph) 'As this is the end of the process future correspondence received from you on this matter will only be responded to if we consider it appropriate'.

I have therefore filed your recent correspondence with the closed file.'

'I have raised very serious new concerns about the matter in the light of the recent ruling which make it clear that the accounts for 1998 and 1999 should have been qualified in the absence of specific legal advice to the contrary. These concerns should be investigated since you have no evidence as to whether the auditors did obtain legal advice. If they didn't then they are as guilty as E&W [E&Y]. It's as simple as that. I will be grateful if you could refer this matter to your superiors (but a good fobbing off effort - clearly you are as dishonest as Ray Farren - but then that's why you got the job in the first place!)'

'The principles upon which the tribunal reach their decision are fairly universal accounting principles. The Investigation Committee is likely to have used those same principles and decided that the facts and matters did not fall within para 3(b). Consequently, I see no reason to put the matter back before the Investigation Committee.'

'I refer to your email dated 12 July 2010 addressed to Mrs McNeela and in particular to that part of it which reads:

". . . clearly you are as dishonest as Ray Farren - but then that's why you got the job in the first place".

I would bring to your attention that:

1) These words are without any basis whatsoever and are clearly defamatory, especially if repeated elsewhere.

2) The use by a member of the ICAEW of such words to describe Institute's staff discharging their duties without any basis whatsoever is discreditable within the terms of Disciplinary Bye-law 4(1 )(a). I hereby give you an opportunity to supply me with a written retraction of those words.

I look forward to hearing from you within twenty one days.'

'You cannot apply principles to the facts if you are not aware of the facts. As I said, in the case of my complaint it appears that you are unaware as to whether PwC sought legal advice. If you have already established as part of the investigation into my complaint that PwC did obtain legal advice then please confirm that to me. If you have not established whether PwC did obtain legal advice then you need to do so. Once you have established the FACTS THEN you can apply the PRINCIPLES. As I said, if they didn't obtain legal advice then they are as guilty as E&W [E&Y] were in respect of Equitable Life. THAT is called applying principles. Please stop trying to wriggle out of carrying out a proper investigation; you are just digging yourself deeper into a hole.

PS Tell Mr. Weatherill that I am not impressed by his threats (apart from anything else he clearly knows nothing about the law). I will not retract my words under any circumstances. That is final. Bear in mind that this correspondence, including his letter, will be available from the ICAEW homepage in due course.'

'You mentioned in your email of 12 July 2010 that your concerns should be investigated since ICAEW has no evidence as to whether the auditors did obtain legal advice. Your latest missive repeats your request. With respect, I must decline that request because the Investigation Committee has already determined that the facts and matters you have presented to us do not constitute a 'complaint' under the Disciplinary Bye-laws and therefore there should be no investigation of them.

As you have not presented me with any fresh evidence and the matter has already been decided by the Investigation Committee I am now concluding this correspondence. Any further communication from you will not be responded to unless we deem it appropriate to do so.'

'1. The report by Sir Jonathan Parker dated 2/6/2010 concerning complaints against Ernst & Young's in relation to their conduct as auditors of Equitable Life found (paragraph 57) that the firm should have qualified the accounts of Equitable Life in respect of GAR liabilities in the absence of specific legal advice to the contrary.

2. It is clear from the Parliamentary Ombudsman's report into the Equitable Life crisis (Equitable Life: a decade of regulatory failure - Part One: main report, para. 74) that at this time 8 other life companies had such significant GAR liabilities that they 'gave general cause for concern' and that one company other than Equitable Life was 'of particular concern'.

3. There are reasonable grounds for believing, on this basis, that the accounts of these other 9 companies should have been qualified on the basis of their GAR liabilities in the absence of specific legal advice to the contrary.

4. I wish to make a complaint against the auditors of these companies on this basis. I am not aware of the companies concerned or the names of their auditors because I do not have access to the relevant documents but there are sufficient indications that member firms may be liable to disciplinary action to justify the Investigation Committee exercising its powers under bye-law 13(1) of the Disciplinary Bye-Laws or otherwise as the case may be.

I am fully aware from our previous correspondence concerning PwC's conduct as auditors of Scottish Widows that you will dismiss my complaint on spurious grounds. I must advise you that a similar response in this case will result in an immediate application for a judicial review.'

'I am writing to let you know that we have received a referral for investigation against you from my colleague, John Weatherill, concerning your email dated 12 July 2010 to Mrs McNeela. I am one of ICAEW's case managers and the matter has been passed to me to consider.

Please note that hereafter the matter is referred to as a complaint.

I am aware that receiving a complaint can be very worrying and, later in this letter, I will tell you more about ICAEW's support schemes which provide confidential help and advice to members.

Over the coming months I will need to correspond with you in order to consider the matter in more detail. The more you are able to help, the more quickly I will be able to investigate the matter, so please reply promptly to my letters and send any information I ask for. We may also copy some or all correspondence to third parties, for example, to other regulators.

The matters arising from the referral which we need to investigate are your statement in your e-mail dated 12 July 2010 to Mrs McNeela which states '.. .clearly you are as dishonest as Ray Farren - but that's why you got the job in the first place.' and your failure to retract this statement when provided with an opportunity to do so.

I have a copy of your email to Mrs McNeela dated 12 July 2010, John Weatherill's letter to you dated 15 July 2010 and your email to Mrs McNeela dated 18 July 2010.

As you are aware, as a chartered accountant, you are required to comply with the fundamental principles set out in the Code of Ethics. The principle of integrity imposes an obligation of fair dealing and truthfulness, while the principle of professional behaviour requires members to avoid any action that may bring discredit to the profession and states that 'professional accountants should conduct themselves with courtesy and consideration towards all whom they come into contact when performing their work.'

I would be grateful for your comments. In particular, could you please provide the following information/documents:

A On what basis, do you make the statement that Mrs McNeela is dishonest?

B Mr Weatherill wrote to you on 15 July 2010 and highlighted the defamatory nature of your statement. You were given an opportunity to retract your statement but stated 'I will not retract my words under any circumstances.' Why is this?

C Please provide any other information which you consider relevant to my investigation.

Once I have had an opportunity to consider any further information, it may be helpful to meet in Milton Keynes.

Unfortunately, it may take some time to investigate these matters. Although we are able to deal with some cases quickly, if it is complex and strongly contested, a case may take over a year. During the investigation, we will keep a record of the time spent on the case. However, you will only be required to contribute to some or all of the costs of the investigation if a case is found against you.

If we need to refer the matter to the Investigation Committee for consideration under ICAEW's disciplinary bye-laws, you will be able to make written representations to the committee in addition to any information you have already provided.

I enclose a copy of our booklet, How we investigate complaints, which describes our investigation and disciplinary processes in general terms. I hope you will find it useful.

I have also enclosed a copy of our leaflet, Support Members, and a list of support members both in your region and other areas of the UK. Support members are volunteer practitioners who listen, help and advise on a confidential basis and who are not subject to the duty to report misconduct. I have told the scheme's administrator that this complaint has been made but have not given any details. She will write to you with information about the help available. I also attach a leaflet of the Chartered Accountants' Benevolent Association who provide additional help and support.

I would be grateful if you would reply to this letter by 16 August 2010, but if you think you will need more time, please contact me.'

'I have checked our records and confirm that we have received notice of your resignation on 7 April 2010 by E-Mail. I note that my colleague, Andrew Taylor, replied to your E-Mail on 23 April 2010 advising that, as you had not resigned before 1 February, we required payment of your subscription before your resignation could be processed. I understand that you did not reply to this E-Mail. Your membership did not however automatically lapse on 31 March 2010.

Your reply clearly indicates that you do not wish to remain an ICAEW member. In view of the fact that your resignation predates the complaint referred to me to investigate, I confirm that your resignation has been processed and the matter now closed.'

'I refer to your letter of 10 August. I did not reply to Andrew Taylor's E-Mail of 23 April 2010 because he was talking nonsense when he claimed that the fact that I had not paid my subscription by 1 February meant that my resignation could not be processed. Principal Bye-Law 6 states that:

'A member may tender his resignation by notice to the Institute and on its acceptance by the Council, but not until then, he shall cease to be a member. Provided that any member whose notice of resignation has not been received before 1st February in any year shall remain liable for any fees or subscriptions in respect of that year.'

It is quite clear that non-payment of a subscription does not prevent the processing of a resignation, the rule merely says that the member will remain liable for the payment of that subscription.

You say that my membership did not automatically lapse on 31 March 2010. Principal Bye-Law 7 states:

'A member shall thereupon cease to be a member [...] (b) if he fails to pay his annual subscription by 31st March in the year in which it becomes due or any increase in such subscription before the expiration of three months after the increase becomes due unless the Council otherwise decides...'

However, if you are right in saying that my membership did not lapse on 31 March 2010 then under Principal Bye-Law 6 you have no authority to process my resignation of 7 April 2010 since that bye-law states that only the Council can accept my resignation.

It appears that both Andrew Taylor and yourself are either incompetent or dishonest. The choice is yours, which is it to be?'

20.3 Complaint 2 to the ICAEW against PricewaterhouseCoopers (ref 78497) (Top of page)

'I wish to make a formal complaint against PricewaterhouseCoopers (PwC) and any relevant partners or staff of that firm, on the following basis:

1. I am a shareholder of Lloyds TSB;
2. PwC acted as auditors of Lloyds TSB for the year ended 31 Dec 2007 and earlier periods;
3. PwC failed to properly assess the risks attached to various assets, the subsequent fall in value of which has effectively made the bank insolvent, and to qualify the 2007 accounts accordingly.
4. PwC therefore failed in its duty to shareholders.

I would refer you in this context to the article 'The Blame Game' in the November issue of Accountancy and especially the words of Richard Murphy and Emile Woolf. Although the article makes it clear that the 'profession' is trying to avoid any blame, it is also clear that serious commentators believe that there is a case to answer. The fact that Lloyds TSB has had to seek Treasury funding is clear evidence of the problem in that bank's case, sufficient prima facie evidence to warrant an investigation by yourselves.

I look forward to hearing from you.'

'The financial turmoil in recent months has led to considerable speculation in the press and elsewhere concerning the role performed by auditors. We continue to keep the position under review and in the event that an investigation is undertaken a public announcement will be made at the appropriate time.'

Two points about this. Firstly, this is clearly a standard letter designed to brush off complaints and, secondly, it does not actually respond to my specific complaint at all.

'If you read the rules of the ICAEW (something that I would recommend to you, when you have a spare moment) you will find that they provide that the ICAEW will investigate individual complaints against members where there are sufficient grounds to do so (that is, where there is prima facie evidence of wrong-doing). Where the ICAEW are 'keeping the situation under review', or whatever the terminology you used was, then a specific complaint in relation to the matter will crystallize your concerns and provide grounds for investigation. But whether you are keeping a situation under review or not is really irrelevant in deciding whether or not to investigate an individual complaint. In short, if a complaint provides sufficient prima facie evidence then you are bound to investigate it, regardless of whether you have general concerns or not or whether or not there have been any other complaints about the matter. You see, when you respond to a complaint to the effect that you are keeping the situation under review, people are likely to interpret that as a brush-off and the act of a body that has reached such a terminal state of moral corruption that its only concern is to protect its own backside and those of its members; but when you get such a serious and widespread failure in professional standards as has happened (to such an extent that it makes the whole idea of 'professional standards' a sick joke) it must be difficult for you to face the truth - for which, my commiserations.

I will be grateful if you could refer this matter to your manager or the appropriate official.'

'The Disciplinary Bye-Laws apply where facts and matters come to the attention of the Institute that indicate a registered auditor has become liable to disciplinary action.

Your complaint is based on the premise that because PricewaterhouseCoopers LLP (PwC) issued an unqualified audit opinion on the financial statements of Lloyds TSB Group plc for the year ended 31 December 2007, the subsequent events in the financial markets, culminating in the recent bailout of the banking system by the UK government, means that the audit opinion by PwC on those financial statements must by definition have been inappropriate.

You refer me to the article in the November issue of Accountancy magazine 'The Blame Game' but this is a general commentary on the state of the auditing profession as it relates to the banking sector and there are no specific allegations contained therein that would cause the Institute to take a disciplinary interest in those comments.

However, the Institute will continue to monitor the situation and if any evidence comes to light that PwC failed in their performance of that audit, then the Institute would consider what action it needed to take at that time.

If you disagree with my assessment and have evidence you send me regarding your complaint, or, as you indicated in your email, you want to request a Principal Assessor review of my assessment, then I would be grateful if you could respond to this email within 30 days. Otherwise, since I do not believe that there is a potential liability to disciplinary action, if I do not hear from I will close my file on this matter.'

So there we have it. The actual bankruptcy of the UK banking system as a result of valueless assets (remember that the banks only survived because they were bailed out by the taxpayer), combined with the complete failure of the auditors of those banks to notice that there was any problem at all, is no indication of anything wrong according to the ICAEW.

'Your E-Mail distorts my complaint. You say that my complaint 'is based on the premise that because PricewaterhouseCoopers LLP (PwC) issued an unqualified audit opinion on the financial statements of Lloyds TSB Group plc for the year ended 31 December 2007, the subsequent events in the financial markets, culminating in the recent bailout of the banking system by the UK government, means that the audit opinion by PwC on those financial statements must by definition have been inappropriate'. This is false. My complaint is not based on the bailout of the 'banking system' but on the specific bailout of Lloyds TSB, which, of course, would not have been necessary had Lloyds TSB not had a massive problem itself. Furthermore, the comments in the Accountancy article apply to the profession as whole and so apply to PricewaterhouseCoopers as part of that 'profession'. But my complaint does not depend upon the article, which merely reinforces my point; the basic facts about Lloyds TSB speak for themselves and provide prima facie evidence that justifies an enquiry. Only a determination to be blind on the part of the ICAEW (understandable since it makes a complete mockery of everything the ICAEW purports to stand for) could lead you to conclude that there is nothing that needs to be investigated.

'I apologise for failing to respond to your email of 10 December 2008 which appears to have been an oversight on my part; no discourtesy was intended.

The duty of the auditor is to report on whether the financial statements show a true and fair view and that these statements comply with the relevant legislation and reporting standards applicable. Whilst you say in your email:

'My complaint is not based on the bailout of the 'banking system' but on the specific bailout of Lloyds TSB, which, of course, would not have been necessary had Lloyds TSB not had a massive problem itself.'

you have not specified what you consider to be the problems in the Lloyds TSB financial statements.

I have read the audit reports issued by PwC on both the consolidated financial statements and those of the parent company and have considered the information supplied as part of the annual report and accounts for 2007 by Lloyds TSB Group plc. I note in particular the directors' statement on risk management which is both substantial and illuminating. Specifically, the commentary on 'Financial Soundness' in that section goes some way to explaining the company's approach to the liquidity and funding risk and what action they had taken to monitor and mitigate those risks. I believe, therefore, that adequate information was disclosed relating to the 'problem'.

Business is not risk free; the auditor has no duty to certify the continued existence of a company and things may happen beyond reasonable foresight. The audit report was signed on 21 February 2008 and, notwithstanding that Northern Rock was taken into state ownership in February 2008; there was no indication at that time that other banks
would be similarly in danger.

At present, therefore, I do not believe there is any evidence to indicate that the audit work undertaken by PwC was flawed as the opinion would be based on circumstances and knowledge at 21 February 2008, could not take into account the extreme situations that the banks would find themselves in some months later and the Annual Report did provide information on the management of risk by the directors.

My view, unfortunately, remains the same as in my email of the 8 December 2008 and if you disagree with me you can request a Principal Assessor Review of my assessment. Please reply to this email and I will pass the file for review.

Once again, I apologise for not responding to your email sooner.'

'I will respond fully to your E-Mail in due course but, in the meantime, could you please confirm that it is the official ICAEW view that, as you put it, 'notwithstanding that Northern Rock was taken into state ownership in February 2008; there was no indication at that time that other banks would be similarly in danger'.

'The views expressed in my email of 12 January 2009 are my own and do not represent the Institute's official view. The Institute's views are formed by the Institute's various committees.'

'If you are expressing a personal view then you are writing to me in a personal and not an official capacity, which makes the whole process meaningless. You are supposed to be representing the ICAEW in an official capacity in relation to a complaint against one of its members. I will be grateful, therefore, if you could write to me in an official capacity stating the views of the ICAEW in this regard and particularly in relation to the view that the effective bankruptcy of a bank (Northern Rock) as a result of credit problems was NO indication of credit problems in the banking sector.

I decline to let you slip out of your responsibilities with such evasions.'

'The views expressed are mine as an assessor in the Professional Conduct Department of the Institute of Chartered Accountants. As an employee of the Institute I am not authorised to speak for the Institute but it is my task to consider complaints allocated to me by applying the rules and guidelines applicable to members to the facts and matters presented to the Institute.

As previously advised, the Institute's views can only be formed by the executive and/or one of the Institute's committees and in the case of the Professional Conduct Department it is the Investigation Committee which, under the bye-laws, has the authority to determine whether or not the Institute has a disciplinary interest in any facts and matters brought before the Institute.

Prior to making an application to the Investigation Committee under Disciplinary Bye-law 9(4) it is usual for the assessor's conclusions to be reviewed by the Principal Assessor and in these circumstances I have put the file forward for such a review. If you disagree with the conclusions of that review, the matter can then be progressed to the Investigation Committee to obtain the official view on the merits of your complaint.'

'Your response to my complaint was an official response from you acting in an official capacity as an officer of the ICAEW, in which case the reasons for your response are also official. You cannot have an official conclusion based on personal opinions; it is a contradiction in terms. On the basis of what you have said, you have provided a personal response based on personal opinions, in which case the ICAEW has not responded to my complaint at all so far. It is that simple. Really, your evasiveness is becoming tiresome and ridiculous. If you are not prepared to give me an official response to my complaint based on official reasons then I will write to the President of the ICAEW.'

'The matter is now with the Principal Assessor and I will revert to you once I have her opinion.'

'There is an interesting letter in the Daily Telegraph today as follows:

SIR – If banks, as public companies, have undisclosed, unquantified debts, are their auditors and accountants corrupt, collusive or just incompetent?

D.M. Jackson
Tadcaster, North Yorkshire

When all this comes out, as it surely will do, what will you feel when you are exposed for what you are? I will, of course, be publishing the full correspondence on the Internet.

The Moving Finger writes; and, having writ,
Moves on; nor all your Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all your Tears wash out a Word of it.'

'Further to my email of 21 January 2009, the Principal Assessor has yet to complete her review of the file and my assessment of your complaint. However, as your email of 14 January 2009 made it clear that you wished to have the Institute's views of the role of the auditors in the banking crisis, I have been made aware that the Institute has provided written evidence for the Treasury Select Committee enquiry into the banking crisis which, I believe, fulfils your requirement. This written submission can be found at:

http://www.parliament.uk/parliamentary_committees/treasury_committee/bankingcrisis.cfm

On that page you will find a heading 2009 SESSIONS AND WRITTEN EVIDENCE and the Institute's submission can be found in the link Banking Crisis 2009 - Written evidence: Memos 36-69.

I have asked that the Principal Assessor review is stayed at this time and I would be grateful if you could confirm whether this meets your requirement or whether you wish to continue with the review of my assessment of your complaint.'

'When someone makes a complaint to the ICAEW they expect, and have a right to receive, an answer to their specific complaint from the ICAEW giving the ICAEW's official view on the matter. They do not expect the personal views of an official or to be referred to reams of evidence elsewhere, much of which may not be relevant.

With regard to the question of whether PwC should have been aware of the risk that Lloyds were taking, I would refer you to today's news that the FSA were concerned about this issue with regard to HBOS back in 2002. See:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4598762/HBOS-risk-concerns-first-raised-by-Financial-Services-Authority-as-early-as-2002.html

Also, of course, the whistleblower, Paul Moore, Head of Regulatory Risk at HBOS, raised his concerns back in 2004.

It is clear that the risks that HBOS and other banks, including Lloyds, were taking were evident some years ago and that PwC should have been aware at that time.'

'Further to your email as attached, I will now ask for the Principal Assessor Review to be resumed.'

'UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 144-i
House of COMMONS
MINUTES OF EVIDENCE
TAKEN BEFORE
TREASURY COMMITTEE
BANKING CRISIS
Tuesday 13 January 2009

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/uc144-i/uc14402.htm

Q26 Mr Crabb: Do you think that the current crisis reveals a failure on the part of the IMF in terms of sending out warning signals?

'Professor Goodhart: No, they did send out warnings. This idea that there were no warning signals from central banks, there were loads of warning signals, particularly from the BIS. This stuff about early warning signals is actually pure nonsense. It is not that there were not enough early warning signals. Everybody forecast that the situation was getting dangerous because risk was being underpriced; the problem was not the lack of early warnings. The problem was the lack of both instruments and willingness to do anything about it.'

Q32 Jim Cousins: I am a little confused by what we are being told. Professor Goodhart and Professor Buiter, are you telling us that those in charge of the financial system did not see the problem or that they did not warn people effectively enough about it or just that they did not have the guts to stop the party?

Professor Goodhart: Basically the last. The BIS and the Bank of England and most other central banks knew that risk was underpriced and they were worried before the event that there would be some kind of severe reversal. They did not know where it was going to come from, they did not know the exact trigger, but they were aware that there were problems, but I do not think that they were prepared to take the tough actions and they did not really have the instruments to do so. They were not able to turn round to the banks and building societies and say, "You shouldn't make loans at such high loan-to-value ratios," for example.

Professor Buiter: I do not think that regulators saw what was coming. There were general warnings. Indeed, the risk rate had become ridiculously low and things were unsustainable but nobody foresaw the complete freezing up of all wholesale markets that mattered and nobody anticipated that the world's leading banks would be socialised or living under a government umbrella by the end of 2008, so I think the magnitude of what was going wrong was not seen by anybody, at least nobody that went on the record. There were warnings and they were not heeded. They were not heeded basically because people feel that they cannot argue with billions.

41 Ms Keeble: Professor Buiter, I will ask both my next questions at once which are about risk, and perhaps if Dr Danielsson wants to come in on that that would be helpful, but in terms of assessment of risk which you have written and spoken about quite a lot, from the earlier discussion it seemed to be that there was a view that that should be down to due diligence by investors. To what extent do you think the credit ratings agencies have been culpable in what they have done and that they should be further regulated? As a second question, when you were talking about Japan, you said almost in passing that you thought that quantitative easing was inevitable here. I wonder if you could just expand on that comment.

Professor Buiter: The credit ratings agencies of course and those who used them are culpable. The credit rating agencies got into a line of business that they did not understand. They were reasonable at rating sovereign and large corporates and not at rating complex structures, but they did it anyway and they were hopelessly conflicting. Part of the solution is to take away their quasi official regulatory role, take them out of the Basle II accords, make them single product firms that just do ratings, no other financial products and services and pay them partly in the securities they are rating and force them to hang on to them. As regards what I would call quantitative and qualitative easing especially, which is the central bank on behalf of the Government really taking significant credit risk and illiquid assets on its portfolio, part of the solution is to get the spreads between the banks' funding cost and the official policy rate (which is not the banks' funding cost) down. That should be a continuation of what is already happening - the rapid expansion of the balance sheet of the Bank of England. I would not want to put government securities on it in the way that Charles apparently does because I think rates on long-dated government securities are already very low. That is not where the problem is. I would have to bank aggressively, purchase as an agent for the government really, based on the right default risk associated with that, private securities of the kind that have the most pay-off - mortgages, mortgage-backed securities, even corporate loans, commercial paper, those kinds of things.

Q58 Chairman: Thank you very much, and welcome. With our previous panel I mentioned that this banking crisis inquiry is looking at how we got here, how do we see ourselves through this situation and what will the future regulatory environment be like. Jon Moulton, how did we get here?

Mr Moulton: I think that the previous panel said it fairly accurately: a wall of cheap debts, asset inflation much accelerated by securitisation, complex financial products, and a grotesque failure of every regulatory system and governance system in the entire set-up . It was really quite spectacular.* That is how we got here. It all collapsed when we started running into the well-known wall of debt of all kinds that could not be repaid, and that is what blew it up.

*[NOTE THAT THE 'GOVERNANCE SYSTEM' INCLUDES THE WHOLE SYSTEM OF AUDITING FINANCIAL STATEMENTS, SO HE IS SAYING THAT THERE WAS A 'GROTESQUE FAILURE' IN THAT SYSTEM - BUT THE ICAEW KNOWS BETTER OF COURSE]

Q71 Ms Keeble: I want to ask a bit about risk assessment. What was your view of the due diligence that was applied by the industry before people invested in some of these very complex products?

Mr Moulton: It went from tolerable to notional to virtually non-existent as we got near the end of the boom. That was what happened in most areas. In the leveraged loan market, half the people who were taking pieces of the loan did not even bother to go to look at the due diligence materials. That is fact.

Q72 Ms Keeble: Was that a culpable level of failure of due diligence? Was it that people did not do it when they knew they should or that they were not competent to be able to unravel these bundles?

Mr Moulton: A mixture of both. The trouble was if you wanted to get a leveraged loan you had to take what was on offer, so you grabbed what there was without checking it. It is the one woman on a desert island sort of problem.

Q73 Ms Keeble: One woman.

Mr Moulton: In the case of some of these assets the products are simply incapable of being analysed by the vast majority of people out there. Northern Rock's last capital issue, the off balance sheet, and it is on the website, 11 layers of debt, three currencies, interest rate swaps, currency swaps, 415 pages of prospectus, nobody understood it.

Q74 Ms Keeble: Should there have been some whistle-blowing about the lack of due diligence given that there is supposed to be a requirement that it should be undertaken?

Mr Moulton: There was a lack of whistle-blowing. It was all part of the desire to keep the boom going.

Q75 Ms Keeble: Who should have been blowing the whistle?

Mr Moulton: Probably the most obvious target would, I am afraid, be the FSA [but also the auditors of course who are actually much more closely involved in their banking clients than the FSA].

Q76 Ms Keeble: It seemed that in the absence of due diligence people were relying on credit ratings agencies and I wonder if you, Jon, or others would like to comment on the reliance on those, whether that was misplaced and a misuse of the ratings agencies, and whether the reform, therefore, should be through greater regulation or proper use of ratings agencies?

Mr Lambert: Clearly credit ratings agencies were part of the process of turning, whatever you call it, stone into gold or whatever the right cliché is - alchemy.

Q99 Mr Todd: It is a thought! Giving apparently relatively free bailouts to banks and offering them ways of taking large amounts of dodgy assets off their books is about as popular to the ordinary person on the street as offering them cyanide. How do we get this message across that these sorts of painful measures, which are very counterintuitive to many people, are nevertheless necessary?

Mr Hutton: I said we need a Marshall Plan for the banks and Nuremburg Trials for bankers. You cannot be certain of what has taken place, but the lack of activism about trying to bring some of these people to book has made it harder to get the policy mix right because we actually have to have functioning credit institutions in this country and functioning wholesale money markets. That is why we are in this discussion now. That is what we have to sell the British public and tell the British public but, equally, some of the people who are involved in actually creating the crisis should be in the dock, if not literally at least metaphorically.

Q112 Chairman: Then back to business as usual, Will?

Mr Hutton: Both things are true curiously. I think a lot of British financiers are lying low waiting for the storm to pass and looking forward to 2010/11 when this monetary easing that is taking place, which is absolutely stunning, will start to see some kind of revival and they are hoping to avoid too much impairment as a result of what is taking place of their freedom of action in the future. In that sense William Buiter is right to say that we are talking three years but the combination of issues from shareholders anxious to protect their investments in future, inquiries like your own and this Committee, and action by the Government, this is a moment in time in which we can really improve the dysfunctionality of British finance, which has been longstanding in my view, that was at the heart of my book, The State We Are In, 12 years ago. That dysfunctionality is one of the reasons why we are in the hole we are in and it should be addressed in some of the ways I have talked about this morning.'

'As you know, if you disagree with the Head of Section review, you may request that the matter be put before the Investigation Committee to determine whether or not it should be investigated. This is provided for under Disciplinary Bye-law 9(4)(a).

The process requires that I prepare a summary report for the Investigation Committee which outlines the nature of your complaint and the Assessment Section’s view as to why these do not in their view amount to a disciplinary matter. All the documents and correspondence we have exchanged with you are either appended to that report or are made available to the members of the Investigation Committee.

Prior to this being sent to the Investigation Committee I will provide you with a copy of the report for your response. This will be added to the report and the document bundle prior to it being submitted to the Investigation Committee.

Their decision as to whether to investigate or not is final and there is no further appeal therefrom.

Should you wish to make such a request, I would be grateful if you could advise me within 14 days. I will then commence preparation of the report.'

'I would like this matter to be referred to the investigation committee. I would particularly ask that the committee address two questions, namely (1) whether the assessor's assertion that Lloyds did not require any financial assistance on its own (i.e. it was all HBOS-related) is correct, (2) whether a couple of opinions from newspapers are sufficient to justify the assessor's conclusion. I would remind the committee that the main question is whether PwC were or should have been aware of the risks and whether they should have ensured that these risks were disclosed in the accounts. In this context I would refer you to the published proceedings of the Treasury Select Committee. You may find the following relevant:

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/uc144-i/uc14402.htm

Q26 Mr Crabb: Do you think that the current crisis reveals a failure on the part of the IMF in terms of sending out warning signals?

'Professor Goodhart: No, they did send out warnings. This idea that there were no warning signals from central banks, there were loads of warning signals, particularly from the BIS. This stuff about early warning signals is actually pure nonsense. It is not that there were not enough early warning signals. Everybody forecast that the situation was getting dangerous because risk was being underpriced; the problem was not the lack of early warnings. The problem was the lack of both instruments and willingness to do anything about it.'

In this context, if the central banks were giving out warning signals, did PwC pick them up and if they did, why did they decide that the risks did not need to be disclosed, given that a distinguished academic has called the risks 'dangerous' and that everybody knew this fact? If the risk was dangerous then what grounds did PwC have for not disclosing them? These are questions that are proper to ask and need to be answered. They are prima facie facts indicating that PwC may be liable to disciplinary proceedings. It is not acceptable to pre-judge the outcome of an investigation into this matter. Only an investigation will answer these reasonable and important questions [my emphasis].

I will be grateful if you would quote this E-Mail verbatim in the material you submit to the investigation committee.'

'I would like to draw the Investigation Committee's attention to Lloyds TSB's annual report which makes it clear that the bank suffered a £1.2 billion loss from what it calls 'market dislocation'. See:

http://www.lloydsbankinggroup-annualreport.com/2008/businessreview/summary-group-results/our-divisions-profit-analysis-by-division/

This demonstrates that Lloyds TSB was exposed and suffered huge losses and was not prudent as claimed by the assessor. The question is whether PwC were aware of the risks the bank was taking. If they were not aware, why were they not aware? If they were aware, why did they say nothing about it?

Please put this E-Mail to the Investigation Committee.'

'I would also draw the Committee's attention to page 52, para 122 of the report of the Treasury Select Committee at:

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/416/416.pdf

concerning Lloyds TSB's requirement for state aid. The assertions by Eric Daniels in para 121 are contradicted by the UK Shareholders' Association. The Investigation Committee cannot simply ignore the claims of such a body. Clearly, the only way to assess who is right is by conducting an investigation. If such an investigation concludes that Lloyds did require state aid regardless of the HBOS take-over, then the question arises as to why they needed such aid. The answer to this question is that Lloyds TSB were up to their necks in highly risky practices just like other banks such as RBS - the only difference is one of degree; RBS were reckless to the point of stupidity, Lloyds were just reckless. PwC should have been aware of these risks and reported them - on the basis that these risks were well-known about at the time, as I explain below.'

Essentially, Lloyds TSB were trying to claim that they only needed financial help (rescuing) because of their takeover of HBOS (i.e. it was because HBOS were in trouble, not Lloyds TSB). This claim was trashed by the UK Shareholders' Association by quoting Lloyds TSB's own circular to shareholders which said, in the bank's own words, that even if Lloyds TSB did not take over HBOS they (Lloyds TSB) would still require GBP7 billion of financial help from the government (i.e. the taxpayer). So Eric Daniels quite simply lied. But the fact that Eric Daniels is proved to have lied doesn't matter to the ICAEW.

'With reference to the above complaint I would be grateful if you could immediately draw the committee's attention to the following, and particularly the table below (from that page) which shows that Lloyds TSB's loan/deposit ratio was worse than that of RBS, this showing that Lloyds TSB were even more imprudent than RBS

http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html

BANK LOAN/DEPOSIT RATIOS MARKET SHARE
     
HSBC 90% 2.8%
RBS 112.3% 6.2%
Barclays 123.45% 6.3%
Lloyds TSB 140.84% 8.1%
Alliance & Leicester 172.41% 3.6%
Bradford & Bingley 172.41% 3.9%
HBOS 175.43% 20.1%
Northern Rock 322.58% 8.1%

'I have been awaiting your comments on my DBL9(4) report and have not yet passed it forward to the Investigation Committee. Before including the latest email, I would be grateful if you could give me a narrative description as to the nature of these figures that you have provided and their relevance to you[r] complaint. As you currently have two complaints open which are both proceeding to the IC, I envisage at this stage that both complaints would go to the same IC meeting and will, therefore, hold this one until such time as it can proceed.'

'The figures relate to complaint ref: 78497 and the source is indicated in the URL given.'

'This does not really help as the URL reference that you provide is a paper, by what appears to be an academic, as to the consequence of loans to deposit ratios in excess of 100%. Whilst I note the position of Lloyds TSB in that table you provided in your email of 19 July 2009, I am unclear as to the relevance to your complaint. I will, therefore, include both these emails in the bundle of documentation to go with the DBL9(4) report and if I hear nothing further from you in terms of representations you wish to make on these reports by 3 September I will put the files forward to the Investigation Committee Secretary for inclusion on the next possible agenda.'

'The whole point of the paper is that it explains one of the fundamental laws of banking concerning loan to deposit ratios. Any banker knows the consequences of breaching this law (as do auditors). The paper explains this in simple terms. Lloyds TSB and the other banks knew what they were doing (i.e. the risks they were taking) and so did their auditors. Both chose consciously to ignore those risks.'

'I would like you to refer the following to the Investigation Committee to demonstrate what is public knowledge and what should therefore indicate quite clearly that PwC knew or ought to have known of the risks that the bank were taking. On the BBC news Channel at 9 p.m. on 27/8 the newsreader referred to the 'high-risk culture [within the banks] that was partly to blame for the current crisis'. Was PwC aware of this high-risk culture and, if so, did they take the proper steps to mitigate those risks? If they took the proper steps, why was the bank exposed to such huge losses? In addition, the newsreader stated that 'even the senior bankers did not understand the sub-prime market'. If the bankers did not understand, did PwC? And if they did understand the risks, what steps do they take to mitigate the risks? If they took these steps, why were the people running the bank still unaware of them? If PwC did not understand the sub-prime markets, what steps did they take to ensure that they did understand it? If they took these steps, what steps did they take to mitigate the risks once they knew of them? If they took these steps why did senior bankers apparently remain unaware of them?'

'The committee considered a matter referred under Disciplinary Bye-law 9(4)(a) and determined that the facts and matters brought to the attention of the Head of Staff did not fall within Paragraph 3(b) of that Bye-law.

Allegation 1 - that PricewaterhouseCoopers LLP signed an unmodified audit report on the financial statements of Lloyds TSB Group plc for the year ended 31 December 2007 when the toxic assets of the company were overvalued.

Reasons for rejecting Allegation 1 - The Committee noted that no specific evidence had been provided to indicate that the auditors should have been aware of a material overvaluation of the company's assets at the date the audit report was issued, ie on 21 February 2008.'

A GBP17 billion bail-out of Lloyds TSB by the taxpayer is 'no specific evidence'? The write-off of GBP1.2 billion in Lloyds TSB's own accounts due to 'market disclocation' (for 'market' read 'not us' i.e. it's not our fault) is 'no specific evidence'. The evidence of the UK Shareholders' Association to the Treasury Select Committee about Lloyds TSB is 'no specific evidence?' What they are saying here is 'we will not start an investigation to find the evidence until we have that evidence' i.e. the usual 'you produce the evidence and then we will investigate it' approach.

The reference to my complaint 'not falling within Paragraph 3(b) of that Bye-law' means that they are saying there is no indication (no indication!) that PwC might be subject to disciplinary action and that my complaint is therefore, according to ICEAW rules, not technically a complaint at all! The reason for this is that if, technically, you have not made a complaint you cannot appeal about the Investigation Committee's decision to the Reviewer of Complaints. In other words, saying that your complaint is not a complaint prevents you from taking further action. It makes you appreciate how devious, dishonest and unpleasant these people are.

21. Institute of Chartered Accountants in England & Wales - Skeletons (or the ghost of Enron) (Top of page)

Section summary: Next summary Previous summary

It turned out that the man who sacked me (Martyn Scrivens, Director of Group Audit, Lloyds TSB and a Chartered Accountant) had been a partner in Andersens (the auditors of Enron) in Australia and had been directly involved in a huge financial scandal in which an Australian insurance company collapsed with liabilities of A$5.3 billion. The collapse was investigated by a Royal Commission which specifically stated that the 1999 and 2000 audits of HIH had been "insufficiently rigorous to engender confidence as to the reliability of HIH's financial statements" and specifically criticised Martyn Scrivens for not seeking legal advice when he knew he should have done so. I made a complaint to the Institute of Chartered Accountants in England and Wales (ICAEW) on the basis that principle 3 of the ICAEW's fundamental ethical principles ('Competence') states that 'A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation' and that this obliged Martyn Scrivens to seek legal advice where he knew his own knowledge or expertise was lacking. The ICAEW's Investigation Committee said that Martyn Scrivens was under no duty to consult a lawyer (in direct contradiction of their own fundamental ethical principles and the words of the Royal Commission) and that there was no indication that Martyn Scrivens was liable to disciplinary action. Tell that to the shareholders! They will be so pleased to know that they can rely on the ICAEW to rigorously uphold its own professional standards!

I wonder whether Martyn Scrivens told Lloyds TSB about all this when he was interviewed for the position of Director of Group Audit. Perhaps they hired him for this very reason! A useful man who can always be relied on not to tell the truth!

Next summary Previous summary

Enron and Andersen - together for the rest of time in the dustbin of history...

Section detail:

On 28 July 2005 I made a further complaint to the ICAEW relating to Martyn Scrivens's involvement, as a partner of Andersens (of Enron fame), in a major financial scandal in Australia, the HIH Insurance Group scandal. Andersen were auditors of the accounts of HIH for 2000, which showed that HIH had A$939 million in assets, five months before it collapsed with an estimated shortfall of A$5.3 billion. It was estimated that the loss resulting from the takeover of FAI, where Martyn Scrivens was engagement partner, amounted to at least A$591 million, which loss was suffered directly by policyholders, that is ordinary people. The HIH scandal resulted in a public enquiry during which Martyn Scrivens's conduct was criticised in no uncertain terms by the judge, as the following article reveals:

Andersen was misled, but sloppy work didn't help
By Elisabeth Sexton
April 17 2003

The auditors of HIH and FAI were misled by company executives, but also made mistakes and did insufficient work before signing the accounts, according to the final report of the royal commission.

Justice Neville Owen said he did not subscribe to the theory that "whenever a company fails its auditor must have been at fault".

However, the commission's detailed examination of the way Arthur Andersen dealt with selected accounting issues revealed occasions where the firm "did not obtain sufficient audit evidence to support its conclusions", the judge said.

"In many instances I found that adjustments ought to have been made to the accounts in relation to matters that were the subject of inquiry."

Andersen's approach to the audit in 1999 and 2000 was "insufficiently rigorous to engender confidence as to the reliability of HIH's financial statements".

The judge said there was a perception Andersen was not independent of HIH. This arose because three former Andersen partners sat on HIH's board, because an audit partner was removed after meeting directors without management's knowledge and because there was pressure on the Andersen partners to maximise fees from non-audit work.

But he found no reason to conclude that the firm's independence was "in fact" compromised.

He made a similar finding in relation to external actuary David Slee, who advised HIH on the funds it needed to set aside to meet future claims.

While Mr Slee's work "produced results that were less than optimal" and some of his dealings with HIH were "less than satisfactory", the actuary "struck me as a strong-willed person who was unlikely to succumb to pressure", the judge said.

In relation to reinsurance contracts used by FAI to overstate its profits in June 1998, the judge said Andersen was misled by executives of FAI and its reinsurers.

But Andersen was aware that FAI had previously engaged in controversial one-off transactions to boost profits. Analysis by two Andersen auditors, Martyn Scrivens and Daniel Vanderkemp, "cried out for legal advice or at least discussion with FAI management", the judge said. "They did not take either step."

On HIH's failure to set aside sufficient funds to meet future claims, the judge said: "In my view, Andersen knew that HIH's provision for liability as at December 31, 1999 and June 30, 2000 was problematic."

The firm knew HIH was exposed to claims which were not booked as liabilities in the accounts and "it would have been better had Andersen taken steps to ensure that the unbooked exposure was booked.

"At the very least, the process of setting provisions would have been advanced had the existence, size and significance of these exposures been brought clearly to the attention of the audit committee. Andersen did neither."

In 2000, when FAI was wholly owned by HIH, its financial statements falsely boosted its capital by $200 million, the report said.

This was achieved by following a suggestion made by Andersen partner John Buttle. The judge found Mr Buttle did not contribute to the way the $200 million was described in the accounts and thus was not involved in any breach of the law.

"Nevertheless the accounting treatment he advised was plainly wrong," the judge said. By actively participating in such endeavours, he "allowed himself to be drawn deeper into the company's affairs than was wise in the circumstances".

This story was found at: http://www.smh.com.au/articles/2003/04/16/1050172656698.html.See also Vol. 2 Chapter 14 of the report at http://www.hihroyalcom.gov.au/finalreport/Chapter%2014.HTML.

'The following reasons were given by the Committee:

1. The report makes clear that the judgement of Mr. Scrivens was not unreasonable given that he was not a lawyer, and that there was no duty upon him to consult a lawyer.
2. The 'criticism' was not part of the findings but a passing comment in the body of the report and, therefore, according to the report Mr. Scrivens "emerges entirely free of any adverse implications".
3. No adverse finding has to date been given by the Companies Auditors and Liquidators Disciplinary Board.'

My response to this is as follows:

1. The ICAEW's 'Guide to Professional Ethics' (the single most important document produced by the ICAEW) lays down 5 fundamental ethical principles. Fundamental principle 3 – 'Competence' states that 'A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation'. This lays a specific duty on members to seek appropriate assistance (e.g. legal advice) where they do not have the appropriate degree of competence. Clearly, members are expected to know when they do not have the appropriate degree of competence.

It is quite clear, on this basis, that either the Investigation Committee do not know the fundamental ethical principles of their own institute, in which case they are incompetent, or they do know the fundamental ethical principles of their own institute, in which case they are lying.

Here as a reminder for the Investigation Committee are the Fundamental Principles of the ICAEW:

Fundamental principle 1 – “Integrity”

A member should behave with integrity in all professional and business relationships. Integrity implies not merely honesty but fair dealing and truthfulness. A member’s advice and work must be uncorrupted by self-interest and not be influenced by the interests of other parties.

Fundamental principle 2 – “Objectivity”

A member should strive for objectivity in all professional and business judgements. Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but no other.

Fundamental principle 3 – “Competence”

A member should undertake professional work only where he has the necessary competence required to carry out that work, supplemented where necessary by appropriate assistance or consultation.

Fundamental principle 4 – “Performance”

A member should carry out his professional work with due skill, care, diligence and expedition and with proper regard for the technical and professional standards expected of him as a member.

Fundamental principle 5 – “Courtesy”

A member should conduct himself with courtesy and consideration towards all with whom he comes into contact during the course of performing his work.

Note also that section 6.2 of the ICAEW's 'Additional Guidance on Ethical Matters for Members in Business' states that 'Circumstances that may threaten the ability of members to perform their duties with the appropriate degree of competence and performance include... insufficient experience, training and/or education'. Section 6.3 states that 'The significance of the threats should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to reduce them to an acceptable level. Safeguards that may be considered include... consulting, where appropriate, with... independent experts'.

2. With regard to the statement that Martyn Scrivens 'emerges entirely free from any adverse implications', this is taken from a passage in the official report on the HIH scandal as follows:

'The findings presented in this report represent the entirety of the findings that are, or could be regarded as, adverse to the interests or reputations of an individual or entity. If, during the course of the hearings, publicity was given to an allegation against or about a person or company and there is no express finding against that individual or entity in the report, then it is to be taken that I have made no such finding. This is the case regardless of what may have been written or said about the person or company, in evidence, in submissions or in publicity about the proceedings. Where there is no finding in this report against the person or company, the reputation of that person or company emerges entirely free of any adverse implications. It must be seen and judged accordingly.'

In Vol. 2 Chapter 14 of the report ('The impact of the FAI acquisition'), which contains the statement that analysis by Martyn Scrivens 'cried out for legal advice', section 14.8 ('Possible contraventions and referrals') states:

'In this section I set out the findings that I have made about matters that might have been a breach of the law in relation to the subjects considered in this chapter. I also note those matters that, in my opinion, should be referred to ASIC for further consideration.'

This makes it quite clear that the judge was only concerned about whether Martyn Scrivens's conduct amounted to a breach of Australian law or whether his conduct should be referred to the ASIC (Australian Securities and Investment Commission). The judge was not concerned whether Martyn Scrivens's conduct amounted to a breach of the ethical or professional standards of the ICAEW and the ICAEW is not entitled to assume that each and every breach of its own standards will also amount either to a breach of Australian law or ASIC regulations and would have been followed up on this basis. Such an assumption is clearly preposterous.

By the way, the Investigation Committee's assertion that the judges remarks were 'a passing comment' is a simple lie; the judges remarks form part of the main body of the report (Vol. 2 Chapter 14) in which Martyn Scrivens is mentioned 99 times (I have counted them - but perhaps the Investigation Committee considers anything less than 100 mentions to be 'passing comment') in a detailed analysis of Andersens' involvement in the audit of FAI's accounts. Hardly a 'passing comment'.

3. With regard to the Investigation Committee's statement that 'no adverse finding has to date been given by the Companies Auditors and Liquidators Disciplinary Board' (CALDB), this simply begs the question of who is responsible for enforcing the ICAEW's ethical and professional standards. I rather think it isn't the CALDB and the ICAEW has no right to absolve itself its responsibilities in such a manner. One may add that if the ICAEW can rely on the CALDB to enforce the ICAEW's standards, then what is to stop the CALDB relying on the ICAEW to enforce its standards? In other words you complain about someone to the ICAEW and they say 'But he was working in Australia at the time and the CALDB haven't done anything about it', so you go to the CALDB and they say 'But he is a member of the ICAEW and they haven't done anything about it'. Clearly, the Investigation Committee's argument is without merit. Worse, it clearly demonstrates a 'go away, we can't be bothered to enforce our own rules' attitude. What is indisputable is that the ICAEW has no right to rely on other bodies to enforce its own ethical and professional standards; in other words it must investigate all cases where there is prima facie evidence of a breach of its own standards (see paragraph 1 above) regardless of whether or not the matter has already been investigated by another body. This may seem clear to you and me but apparently it is beyond the mental powers of the Investigation Committee to arrive at this simple and obvious conclusion.

22. Institute of Chartered Accountants in England & Wales - Conduct unbecoming (Top of page)

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It is important to understand, in this context, that, as a member of the ICAEW, I became a whistleblower on the specific (written) advice of the ICAEW itself (effectively an instruction since, I believe, a member could be subject to disciplinary action for not complying with the advice of the Ethics Advisory Service), that I was victimized and harassed on this account, that I was subsequently sacked by, of all things, another member of the ICAEW in clear breach not only of Lloyds TSB's own rules (see section 15) but also the ethical and professional standards of the ICAEW itself and that the ICAEW refused to properly investigate the matter, claiming that my complaint is 'reserved', in some way they refused to specify, to Employment Tribunals or the Courts and therefore not technically a 'complaint' at all under ICAEW rules. Put simply, their evasions are a disgrace.

23. The Daily Telegraph (Top of page)

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