Britain should compensate Equitable Life policyholders who lost savings and pensions when the company suffered near-collapse, according to a report approved by the European Parliament yesterday.

MEPs voted overwhelmingly to endorse the findings of a parliamentary committee investigation into the Equitable Life debacle, which concluded that the British government had failed to comply with EU legislation requiring it to safeguard investments.

More than one million people, including 6,500 Irish policyholders, had their savings wiped out after Equitable guaranteed customers a minimum rate of return when they retired but later found it could not afford to honour its commitments.

The report said the British government's "light touch" regulatory approach had "contributed to a weak regulatory environment, which allowed the difficulties at Equitable Life to grow unchecked". Tighter rules, as required by EU law, might have helped prevent the company's "final crisis", it found.

In the absence of any other real possibility of redress for those affected, the report concluded, "the UK government is under an obligation to assume responsibility" for losses suffered by investors.

"The committee therefore strongly recommends the UK government devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders within the UK, Ireland, Germany and elsewhere."

Prospects for compensation look slim, however. The European Parliament report is non-binding and it has no power to order a payout.

Campaigners on the issue suffered a setback recently when it emerged that the publication date for a separate UK parliamentary ombudsman report on the case had been delayed until October at the earliest.

Nevertheless, the European Parliament report's author, British Liberal Democrat MEP Diana Wallis, said she hoped the findings would help bolster the case of those affected.

"For the victims of the Equitable Life failure, the report delivers an analysis of the UK's flawed process of implementing EU law which, combined with the imminent report of the UK parliamentary ombudsman, should arm the victims with powerful findings," she said.

Asked at a press conference following the vote how realistic were hopes of compensation, EU Internal Markets and Services Commissioner Charlie McCreevy said it was a matter for the British government to decide.

The report also recommends new EU rules allowing cross-border clients of financial services firms to unite in seeking "collective litigation" - similar to class action lawsuits in the US but with stricter terms regarding the amount of damages.

Dublin Labour MEP Proinsias de Rossa agreed such rules should be highlighted in light of the Equitable Life controversy.

"This would make it possible for people who don't have millionaire bank accounts to collectively seek justice in their courts against transnational companies or national regulators.

"This is essential in my view if the principle of 'no mobility without liability' is to have any real substance," Mr de Rossa added.