The personal finance watchdog pledged six months ago to re-open enquiries into insurer Colonial Mutual following complaints over alleged training and sales malpractice made by several former employees.
Since then, despite assurances by PIA chief executive Colette Bowe and former head of monitoring Alan Brener, no effective investigation has been carried out, Colonial sources say.
The case is not the only one where the PIA has been accused of being more a cosy club for member firms. Yesterday Austin Mitchell, Labour MP for Grimsby, called for an urgent review by the Securities and Investments Board. "It all indicates that as a regulator the PIA is useless," he said. "It seems incapable of investigating."
Mr Mitchell has taken up the complaints of two former Colonial employees who are preparing legal action.
The row comes at a sensitive time for the Australian-owned insurer, which will this week announce plans for demutualisation ahead of a planned pounds 1bn flotation next year.
Colonial has around 600,000 life and pensions policies in the UK, with some pounds 3bn of funds under management.
Allegations date back to December, 1993. Two managers were sacked after Peter Smith, a former manager, claimed training records had been falsified.
Colonial had been fined by regulators before, but new general manager Rob Garnsworthy, installed in mid-1994, insists it has since cleaned up its act.
Internal documents, however, show that the firm's compliance team had serious concerns over training and competence of salesmen in May this year.
"The more work we do in certain areas, the greater and more significant my concerns become," compliance officer John Anthony wrote to Mr Garnsworthy on 20 May.
The memorandum raised concerns over aspects of marketing, record-keeping, supervision and monitoring of salesmen and trainees. The worries were echoed in another note, dated 17 May, from Colonial's review team to Eric Burrow, the national training manager.
The memoranda were prepared ahead of the PIA's periodic inspection visit in June and July. That routine visit had already been delayed at Colonial's own request from last December, despite assurances by Mr Brener in February that allegations by four former Colonial trainees would be thoroughly investigated.
According to one Colonial employee, however, the PIA team made but a cursory inspection when it finally visited. "We had expected a thorough investigation. Instead, at Chatham (head office), they spent just 30 minutes talking to administrators," the employee said.
Mr Brener recently left the PIA and took up a position two weeks ago as head of regulatory strategy at National Westminster UK.
Mr Smith meanwhile is currently suing Colonial for alleged victimisation. One trainee, Maurice Timbrell, was also granted legal aid last month to sue the firm.
Mr Mitchell took up both cases with Colette Bowe in June and was assured their claims were being investigated - by Colonial itself.
The PIA has since insisted it is still taking the case seriously, but refused to discuss specifics with the Independent on Sunday.
Last week Mr Garnsworthy played down the two leaked memoranda, saying the reports were a reflection of the "harsh critical look" he had ordered ahead of the periodic inspection.
All the problems had been rectified and, verbally so far, the PIA had given Colonial a clean bill of health, he said.
Colonial continues to contest Mr Smith's legal action.Reuse content