The Parliamentary Ombudsman has urged ministers to apologise to Equitable Life policyholders and compensate them for any money they lost as a result of regulatory failure.

In her report into the Government's regulation of the mutual, Ann Abraham said she found evidence of "serial regulatory failure" for more than a decade.

She accused the former Department of Trade and Industry (DTI) and the Government Actuary's Department (GAD) of being "passive, reactive and complacent" in their regulation of the society before July 1998.

She added that between July 1998 and December 2000, the regulators' actions were "largely ineffective and often inappropriate" despite them being aware of the society's growing problems.

Overall, she identified 10 instances of maladministration by the DTI, GAD and the Financial Services Authority in the period leading up to December 2001.

She called for a compensation scheme to be established to assess the individual cases of current and former policyholders and to compensate them for money they had lost as a result of the problems at Equitable.

Ms Abraham said the scheme should be set up within six months of the Government and Parliament agreeing to do so, and it should aim to complete its work within two years.

The report was widely seen to be policyholders' last chance to get compensation after previous reports were either ignored by the Government or failed to find sufficient fault with the regulators.

It also comes after Equitable abandoned its £3.3 billion legal action against its former auditor Ernst & Young and settled with its 15 former directors, whom it had been pursuing for £2.6 billion.

But policyholders will have to wait until at least the autumn before they learn if the Government will follow the Ombudsman's recommendations to compensate them.

A Treasury spokesman said: "The Government recognises that the Ombudsman's report raises issues of concern for the parties involved.

"The length and complexity of the report mean it would be inappropriate to comment before giving it our full and careful consideration. We expect to provide a full response to the House in the autumn."

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