Our assessment does identify a number of things which the FSA could have done better. There were occasions when regulators did not spot issues to be addressed or did not follow them up

Baird Report

The Baird Report, published on Wednesday, recommends a more proactive approach by the Financial Services Authority to ensure that customer interests are protected.

It also calls for improved solvency and disclosure standards, and better ways of evaluating risks.

Equitable closed to new business last December, when it was left with massive liabilities after a legal ruling over guaranteed annuities.

Main findings

The report was conducted by the Financial Services Authority into its own and the Personal Investment Authority's roles between January 1999 and December 2000.

It highlights many problems not only over the handling of Equitable Life, but also longer-term issues for regulation.

However, its main criticisms centre on the regulator's failure to spot key problems in January 1999 as well as follow up issues as they were uncovered.

In particular, a failure to enquire about the wording of a document which would "have recognised sooner a significant weakness in Equitable Life's solvency position."

The report also highlights a lack of foresight in relation to the House of Lords decision on guaranteed annuities.

In particular, that Equitable Life continued to promote and sell its products after the House of Lords judgement.

Treasury's role

The report calls on the FSA to improve its internal communication and co-ordination, as well as improve business regulation and supervision.

Ruth Kelly, economic secretary to the Treasury, has asked the FSA to implement the report's recommendations and report back by 20 November to explain what action it has taken, or plans to take, to implement the recommendations of a stronger regulatory approach.

However, until the FSA becomes the single regulator later this year, the Treasury remains formally responsible for the prudential regulation of insurance companies, although it has contracted out some of its functions and powers to the FSA.

Tory Treasury spokesman Christopher Chope said: "The Treasury are trying to suggest it's a 'not me guv' situation and that the Treasury were not involved.

"This report makes it absolutely plain that in 1998 the Treasury took responsibility from the Department of Trade and Industry for the prudent regulation of insurance companies."

Stinging rebuke

The report reveals that the FSA's communication and co-ordination with other bodies was problematic.

It believes that if a more proactive, "challenging, carefully co-ordinated and researched approach" was taken it would have been in a better position to manage the consequences for policyholders following the House of Lords judgement.

The report said: "Our assessment does identify a number of things which the FSA could have done better.

"There were occasions when both the prudential and the conduct of business regulators did not spot issues to be addressed or, having sorted them, did not follow them up."

In order to rectify the errors, the FSA does not need a massive increase in resources, according to the Baird report, but only a moderate increase and "better application of resources."

Report's limitations

The FSA's report into Equitable Life was commissioned in December 2000 by the FSA Board .

But industry observers say it has limitations. It only looks at the period between the beginning of 1999 and December 2000, when Equitable closed to new business.

They also say there are shortcomings in how the report was conducted.

FSA director of internal audit Ronnie Baird, who wrote the report, did not have access to documents held by Equitable Life or its advisers.

He also did not conduct interviews with any of the present or past Board members, staff or professional advisers of Equitable Life.

The report notes these limitations, saying that by 1 January 1999, the "die was cast" and the FSA could not have mitigated, in any material way, the final outcome.

Penrose enquiry

There are a number of other reports into the Equitable Life debacle, including one commissioned by the Treasury on 31 August.

Lord Penrose, who will lead the enquiry, has a much wider remit.

The report will go back over 40 years when Equitable Life began selling policies containing a guaranteed annuity option.