Equitable Life policyholders will be disappointed by the result of the Parliamentary Ombudsman’s investigation into the regulation of Equitable Life by the city watchdog, the Financial Services Authority.

The watchdog had been accused of failing to carry out its role during the period leading up to the collapse of Equitable Life, but the Ombudsman, Ann Abraham said she had found no evidence to suggest that the watchdog failed in its regulatory responsibilities during the period under investigation.

Policyholders were hoping for a 'guilty' verdict, giving them greater bargaining power for compensation.

Ms Abraham said she had "deep sympathy" for policyholders who had suffered financial loss, but said she would not be investigating further complaints about the insurer.

The Ombudsman found no evidence to suggest that FSA, acting as prudential regulator, had failed in their regulatory responsibilities during the period under investigation. Nor did she find that the decisions which they had taken as to what action was required of them in relation to Equitable were unreasonable.

The Ombudsman said: “Because of the limits on my jurisdiction, I could only look at a very small part of what is a much larger and more complex picture.”

“My predecessor had expressed strong reservations about whether such a restricted investigation could properly establish all the facts relating to the closure of Equitable to new business in December 2000, and the lessons to be learned from them. From my experience of looking at the actions of just one of the relevant parties concerned over a relatively short period of time, I am firmly convinced that he was right”.

The Ombudsman added, however, that the investigation had highlighted a specific issue that she wished to draw to Parliament’s attention. That was the apparent mismatch between public expectations of the role of the prudential regulator and what the regulator could reasonably be expected to deliver. It was never envisaged by those who framed the legislation establishing the regulatory regime that it would provide complete protection for all policyholders. The emphasis was on a “light touch” approach to regulation and the avoidance of over-interference in a company’s affairs.

With the enactment of the Financial Services and Markets Act 2000 the system changed. Whether the current regulatory regime meet consumers’ expectations are matters for Parliament, not the Ombudsman.

Referring to calls for her to extend her investigation to an earlier period, Ms Abraham said:

“I have the very deepest sympathy for those who have suffered financial loss as a result of events at Equitable. However, given my very limited remit and the conclusions I have drawn from the investigation, I do not believe that anything would be gained from my further intervention, nor do I believe I could meet the expectations of policyholders in terms of the remedies they are seeking.”

“It would be offering policyholders false hope were I to suggest otherwise. I have therefore decided not to investigate further complaints about the prudential regulation of Equitable.”