Controversy Flares between Regulators Over Independent Collapse

“What did you know, and when did you know it?” Those famous questions from the Watergate era could well be applied to the growing controversy between the U.K.’s Financial Services Authority and France’s Commission de Contrôle des Assurances (CCA) over the financial condition of Independent Insurance, which was put into liquidation last month with a mountain of debt and at least £62 million ($86.8 million) in unrecorded claims.

Jacques Delmas-Marsalet, who heads the CCA, charged that the FSA had ignored warnings from French regulators about the shaky condition of Independent’s French subsidiaries late last year. A formal report in in January contained evidence that Independent was attempting to hide large losses in France.

Despite these warning the FSA took no action until shortly before Independent’s collapse. Similar charges have been made by several members of parliament, who have called for a full investigation of the way the agency handled audits of Independents accounts. It apparently relied on statements by the company’s own accountants, rather than conducting its own investigation.

ly defended his agency’s conduct, asserting that the French report had added nothing to regulators knowledge on independent’s condition, and faulting the CCA for breaching the unspoken rule that one regulatory body doesn’t openly criticize another.

The FSA knew of Independent’s under reserving problem as early as January, Davies indicated, and had instructed the company to take steps to increase its capitalization. The unreported claims, possible fraud and problems with three reinsurance agreements only surfaced after the company’s attempt to do this had failed, Davies stated.