Equitable chief Vanni Treves told Channel 4 news in an interview that the firm may take legal action against the government if an ongoing inquiry into the Equitable affair concludes that industry regulators failed to protect policyholders' interests.

The inquiry, led by Lord Penrose, is not expected to report until late next year.

"If (Lord Penrose) finds there has been regulatory failure we'll of course take action in light of that.

"We will take legal action against whoever was responsible, against any arm of Government that Lord Penrose finds has legal culpability," Mr Treves said.

Cash shortage

The Penrose inquiry is focused in part on whether regulatory failures by the Financial Services Authority, and before it the Treasury and the Department of Trade and Industry, contributed to the Equitable Life crisis.

At issue is whether regulators allowed the firm to continue selling policies between 1998 and 2000 even though they knew its reserves were running low.

The company, the UK's oldest life insurer, was forced to close its doors to new business in December 2000 after it emerged that it could no longer afford to pay its customers what it had promised.

Equitable is already suing its former auditors, Ernst & Young, and its former directors, in a £3.9bn lawsuit.