The closure of BCCI in July 1991 caused substantial losses and hardship for depositors, creditors, local authorities and thousands of employees in the United Kingdom.
For many of those affected, the question of compensation became inseparable from the question of double standards. If BCCI had suffered supervisory failures - as the Bingham Report itself acknowledged - why did the response to those failures stop at an inquiry, when other victims of regulatory failure in Britain went on to receive real compensation?
Two cases became central to that argument: Barlow Clowes, raised directly in Parliament at the time, and Equitable Life, a later case that shows the same pattern repeating on a far larger scale.
The Question of Supervisory Responsibility
The Barlow Clowes Comparison
The treatment of investors in Barlow Clowes became one of the principal comparisons raised by those campaigning for compensation for BCCI victims.
Barlow Clowes had collapsed in 1988, causing substantial losses to thousands of investors. The Government initially rejected demands for compensation. It maintained that it had no legal liability and that the available evidence did not justify using taxpayers' money to compensate investors.
The position subsequently changed following an investigation by the Parliamentary Commissioner for Administration, which found maladministration. Although the Government did not accept legal liability, substantial ex gratia compensation was eventually provided to Barlow Clowes investors.
The significance of the case for BCCI was therefore not that the circumstances of the two institutions were identical. Rather, Barlow Clowes demonstrated that the Government was prepared to provide discretionary compensation where serious failures in regulatory administration had contributed to losses, even without accepting legal liability.
The Comparison Raised in the UK Parliament
The comparison was made explicitly during the House of Commons debate on the Bingham Report on 6 November 1992.
Keith Vaz MP in UK asked why BCCI depositors, creditors, former employees and local authorities should be treated differently from the victims of Barlow Clowes. He pointed out that compensation in the Barlow Clowes case had initially been refused but was subsequently paid.
The Government rejected the comparison. Economic Secretary Anthony Nelson argued that Barlow Clowes was different because the Parliamentary Commissioner for Administration had recommended compensation in that case.
This response itself raised another difficulty.
No Equivalent Ombudsman Route for BCCI
Those affected by BCCI did not have an equivalent means of obtaining an Ombudsman finding against the Bank of England.
During the same parliamentary debate, it was pointed out that, because of the statutory position of the Bank of England, local authorities and other BCCI victims could not simply take the Bank's supervisory conduct to the Parliamentary Commissioner in the manner that had proved decisive in the Barlow Clowes case.
This created an apparent circularity in the Government's argument: Barlow Clowes compensation was distinguished because an Ombudsman had recommended it, while BCCI victims did not have access to an equivalent Ombudsman route through which such a recommendation could be obtained.
The difference in available remedies therefore became part of the wider argument about whether BCCI victims had received equal treatment.
The UK Government's Position
Its position was that BCCI differed from Barlow Clowes, and that shortcomings identified in supervision did not automatically establish that the losses suffered by depositors would have been avoided had the Bank of England acted differently.
Those arguing for compensation challenged this reasoning. They pointed out that Bingham had not been asked to determine compensation, that the UK Treasury Committee had subsequently made an explicit finding of supervisory failure, and that Barlow Clowes demonstrated that discretionary payments could be made even where the Government denied legal liability.
Why Barlow Clowes Matters
Barlow Clowes should not be presented as an identical case to BCCI. The businesses, regulatory arrangements, nature of the losses and available statutory remedies were different.
Its importance lies in the principle demonstrated by the UK Government's response. In Barlow Clowes, compensation had initially been refused. After findings of maladministration, however, the Government reconsidered its position and made substantial discretionary payments despite continuing to deny legal liability.
In BCCI, serious supervisory failures were subsequently identified, and the Treasury and Civil Service Committee expressly concluded that the Bank of England had failed to discharge its supervisory duties. Yet no comparable additional compensation scheme followed.
The comparison therefore raises a legitimate question about the consistency of the approach adopted towards victims of failures involving financial regulation and supervision.
A Second, Larger Example: Equitable Life
If Barlow Clowes could be dismissed by the Government as a one-off, a second case - arising a decade later, and on a far larger scale - makes the pattern much harder to explain away.
Equitable Life was Britain's oldest mutual life insurer, in business for over 240 years, when it came close to collapse in the early 2000s. Its troubles stemmed from guaranteed annuity promises made to policyholders decades earlier - commitments the society could no longer honour once market conditions changed, a problem regulators had been aware of for years without acting effectively to address it.
The Parliamentary Ombudsman investigated and, in a series of reports, found what she described as "serial regulatory failures" spanning multiple regulatory bodies over roughly a decade - the Department of Trade and Industry, the Government Actuary's Department, and the Financial Services Authority among them. The Ombudsman assessed the "relative loss" caused by this maladministration at approximately £4.1 billion.
The Government's response, after years of delay and a change of administration, was to legislate the Equitable Life (Payments) Act 2010, establishing a payment scheme for affected policyholders. Even here, the compensation offered fell well short of the Ombudsman's own assessment: the Government committed up to £1.5 billion, a fraction of the £4.1 billion figure the Ombudsman had put on the losses attributable to regulatory failure, with payments prioritised toward older and more vulnerable policyholders first.
Why Equitable Life Matters for BCCI
Equitable Life confirms, on a much larger scale than Barlow Clowes, that the British state has a clear precedent for compensating the victims of regulatory failure - through Ombudsman findings, through parliamentary legislation, through a dedicated payment scheme - even when the sums involved run into billions of pounds and even when full legal liability is never formally admitted.
It also shows that even where compensation follows, it can be heavily contested and substantially reduced from what was independently assessed - a pattern of "some acknowledgment, less payment" that BCCI's victims never even reached the first stage of. Barlow Clowes and Equitable Life both received a finding of maladministration and, eventually, money. BCCI received a Bingham Report that found the Bank of England had erred - and nothing further.
A Question of Equal Treatment
Two other groups of financial victims - those affected by Barlow Clowes and those affected by Equitable Life - went on to receive compensation, in one case discretionary and ex gratia, in the other legislated and scheme-based, following findings of maladministration by UK regulatory bodies.
BCCI victims were therefore entitled to ask why a comparable principle was not applied to them.
What is clear from the UK parliamentary record is that the issue of compensation was seriously considered, that direct comparisons with Barlow Clowes were repeatedly made at the time, and that a proposed Treasury Committee recommendation for compensation, supported by Labour Party members, was defeated. The Equitable Life case, arising later, only reinforces the same question: when supervisory failure is established, has the response to BCCI's victims been consistent with how Britain has, on at least two other occasions, chosen to treat the victims of comparable regulatory failures?
