Sir Philip Watts had worked for Shell for 30 years

The Financial Services Authority looked into his role in the affair, which was triggered by Shell's disclosure that it had overstated reserves by 20%.

The row forced Sir Philip to resign and resulted in Shell being fined £17m for market abuse.

The announcement brings to an end the FSA's 18-month inquiry into Shell.

Sir Philip was forced to stand down in March 2004 after it emerged that Shell's proven reserves were much lower than previously indicated.

The disclosure angered investors and resulted in $15bn being knocked off the company's stock market value.

Two other senior executives subsequently stood down.

This vindicates the position Sir Philip has maintained throughout: that he acted properly and in good faith at all times   Herbert Smith, lawyers for Sir Philip Watts

The FSA fined Shell in August 2004 after finding it guilty of market abuse and breaching stock market rules.

The oil giant also agreed to pay a $120m penalty for violating US stock market rules.

The regulator said on Wednesday it would take "no further action" against any individuals, effectively clearing Sir Philip and other executives of any personal wrongdoing.

The FSA also confirmed that there were "no other outstanding issues" against individuals stemming from the case.

Sir Philip said he was very pleased by the regulator's decision.

"This vindicates the position Sir Philip has maintained throughout: that he acted properly and in good faith at all times," said a statement issued through his lawyers Herbert Smith.

Sir Philip had previously criticised the FSA, arguing its decision to fine the company before concluding its separate investigation into the conduct of individuals had prejudiced his position.

A tribunal ruled in September that the FSA had acted properly in its investigation.