AN INVESTIGATION into the near collapse of Equitable Life has rejected calls from disgruntled policyholders for compensation.

The findings of the report, conducted by Parliamentary Ombudsman Ann Abraham, cleared City watchdog the Financial Services Authority (FSA) for its handling of the Equitable case between January 1999 and December 2000.

Policyholders will be left disappointed by the report, which could have directed the Government to pay them compensation if it had found the FSA negligent.

But the Ombudsman found no evidence to suggest that the FSA, acting as prudential regulator, had failed in its regulatory responsibilities during the period under investigation.

It also cleared the FSA of taking any unreasonable decisions in discharging its duties during Equitable's troubles.

The world's oldest mutual insurer was plunged into difficulties in 2000 when it lost a legal battle in the House of Lords over the rights of its guaranteed annuity rate policyholders, leaving it with a £1.06bn pensions liability.

Because of the limits on the Ombudsman's jurisdiction, Ms Abraham said she had only been able to examine a small part of a much larger and more complex picture.

Her predecessor, Sir Michael Buckley, had questioned whether such a restricted investigation could establish all the facts relating to Equitable's closure to new business in December 2000.

Ms Abraham said she had "the very deepest sympathy" for those who had suffered financial loss as a result of events at Equitable but said it would be offering false hope to suggest more could be achieved by further action.

She said: "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."

Many policyholders were hoping the report would be expanded to include the crucial pre-1999 years. The Penrose report into what went wrong at Equitable is due out later this year.

Liz Kwantes, of the Equitable Life Members Help Group, said: "We are still relying on the Penrose report but I think the ombudsman should have a larger remit. We will carry on fighting.

"This questions whether people with pensions have any protection at all."

The FSA welcomed the findings.