An internal inquiry by the Financial Services Authority has severely criticised its own performance in the Equitable Life scandal.

Equitable closed to new business last December after the House of Lords overruled its position on guaranteed annuity prices, written in the 1970s and 1980s, when interest rates were much harder.

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. The FSA is urged to improve its internal communication and co-ordination, as well as improve business regulation and supervision.

Forum Response: Consumers Association

Mick McAteer, senior policy adviser for the Consumers' Association, told ePolitix.com: "This was one of the first tests for the new regulator and it has failed miserably, not because it could not prevent it but because it has failed to focus on dealing with the aftermath."

"The Baird report paints a damning picture of a lack of communication and co-ordination, a lack of preparedness and planning for the possibility that the Equitable could lose the court case, and frankly a degree of naivety on the part of the FSA with regards to the information on which it based its assessment of Equitable's financial strength. Most disturbing of all is the recognition that no one in a senior position appeared to take this issue seriously enough."

"The report raises the possibility that existing and potential policyholders were misled about the Equitable's financial strength, and with that the need to consider redress for those who were misled. Consumers need to be confident that the regulatory system works so that they can trust information put into the public domain. Only then can they be expected to make informed decisions with confidence. The FSA needs to act quickly to demonstrate its commitment to protecting consumers."

"However, as the report says, the "dye was cast" before FSA's involvement. The main damage was done on the watch of the DTI and HM Treasury before responsibility was transferred to the FSA. The Lord Penrose Inquiry will therefore be crucial in helping to establish the events leading up to what is now an uncertain financial future for Equitable policyholders."