The Parliamentary Ombudsman is to investigate the actions of City regulators over Equitable Life.

The news that Michael Buckley, the Parliamentary Ombudsman, has written to MPs announcing that he proposes to conduct a statutory investigation has raised hopes of Equitable policyholders looking for compensation.

Mr Buckley said he would conduct investigations into the regulation of Equitable Life from 1 January 1999 to 8 December 2000.

This is the period covered by a recently published Baird report, which identified maladministration and criticised the regulator's failure to spot key problems in January 1999 as well as a lack of foresight in relation to the House of Lords decision on guaranteed annuities.

Policyholder hope

The aim of the new investigation by Mr Buckley would be to establish whether individuals have suffered "injustice as a consequence of maladministration by the Authority during that period".

If he does so, some policyholders might be in line for compensation.

The Ombudsman will send a formal complaint to the Treasury, with an invitation for the department to respond before Mr Buckley commences his investigations.

Mr Buckley said that his report would not overlap with the inquiry headed by Lord Penrose which has been commissioned by the Treasury.

The announcement is a reversal of a decision last month that there would be no investigation before the outcome of Lord Penrose's inquiry which is expected mid 2002.

Parliamentary grilling

Both the Treasury and the FSA were facing a grilling on Tuesday morning over the recently published Baird report.

Sir Howard Davies, chairman of the FSA, was expected to receive a rough ride in front of the Treasury Select Committee.

Ruth Kelly MP, economic secretary to the Treasury, will also face scrutiny by the Common's committee.

Ms Kelly is likely to face questions over whether Equitable should have continued selling policies in the months immediately before it closed to new business in December 2000.