One of the biggest financial scandals of recent years was the discovery that investors who had put their money with the Equitable Life were not going to get the returns they expected.

The court ruling that sealed the fate of an estimated 400,000 policy holders came at the end of the year.

Now the mutual assurers' management will face angry policyholders at the company's annual general meeting (AGM).

However, attention has shifted from the Equitable's management to financial regulators, as evidence emerges that they were aware of the insurer's problems long before they became public - but failed to act.

Investigation

Many policy holders want to know why the Equitable was allowed to continue trading until now.

These are likely to be further angered by claims that the government and regulators were aware of the Equitable's potential difficulty in paying bonuses since November 1998.

"The information received to date is unconvincing, and raises serious questions about the company's solvency," wrote a member of the government's insurance directorate in a memo to the FSA in 1998, leaked to the Guardian newspaper.

Some consumer groups' have already called for the whole industry to be investigated.

What happened with Equitable Life is a sympton of an industry whose problems include a "lack of corporate accountability, secrecy and failures of regulatory oversight," Sheila McKechnie, director of Consumers' Association said.

The Consumers' Association say regulation favours the industry, sacrificing the interests of the consumers.

"The time has come for a thorough review of the 'with profits' industry and the way it has been and should be regulated. Both the Treasury and the FSA bear a responsibility for the present lack of confidence in the system," she added.

FSA investigation

The Equitable Life is regulated by the Personal Investment Authority, part of the FSA.

The FSA - an independent non-governmental body accountable to parliament - has already announced its intention to investigate itself.

This review will cover roughly a two-year period from the beginning of 1999 until the Equitable's closure to new business on 8 December last year.

By choosing to carry out the review itself, the FSA has attracted fresh criticism. Surely, it should have opened the doors to an independent investigator?

But opinions also differ as to the nature of the problem.

Nature of the beast

While the consumers' group believe regulation needs to be shaken up, some blame the Equitable Life's poor management and others point the finger at the hard sales culture of the insurance industry.

"Rank incompetence at top levels," is how pensions lawyer John Quarrell defined the problems at Equitable.

Unlike the Consumers' Association, he is loathe to tar the rest of the insurance industry with the same brush.

"We don't know enough about the way insurance companies are run to tar them with the same brush as the Equitable Life," Mr Quarrells said.

He blames the regulators for failing to act sooner. "They... should have looked at this much more closely earlier. Even before the first court hearing. They should have checked to see what downside there would be if they lost," he added.

Current regulators are satisfied once a customer has ticked the right box and filled in the right form, argues consultant Frank Burroughs at PA Consulting.

"Many consumers go through that process so salesman can say don't blame me, but the customer is none the wiser as to what they have actually bought," Mr Burroughs said.

"I perceive a life industry that has come from quite a hard sales culture and cares less whether the customer has got the right product or not," he added.

In this scenario, life insurers can claim that the customer got what they wanted because they were fully compliant.

Mr Burroughs points out that the practice of issuing sales targets to advisors encourages people to bend the rules.

"The heroes in that industry are the guys who sell the most. Overall there is a strong culture of Caveat Emptor.

"What I have seen is that they tend to be more concerned about people having been through due process...they act very quickly if they find their boxes and forms haven't been ticked and filled in," Mr Burroughs said, highlighting their reluctance to look at broader issues.

"The biggest change would be the real culture change in the way that some companies in the industry operate," he said.