The Financial Services Authority stunned City lawyers by announcing it was closing the file on Sir Philip’s role in the company’s misleading of shareholders over its oil and gas reserves.

Sir Philip seized on the announcement as evidence that he had cleared his name. His solicitors, Herbert Smith, said: “This vindicates the position Sir Philip has maintained throughout: that he acted properly and in good faith throughout.”

But regulatory lawyers were astonished at the U-turn by the FSA, which two months ago won a significant skirmish against Sir Philip, when the Financial Services & Markets Tribunal rejected his claim that he had been unfairly treated. Robert Turner, of Simmons & Simmons, the law firm, said: “This is very surprising given the tribunal decision. I imagine this must have been a very hard decision for the FSA.”

The FSA’s Regulatory Decisions Committee is understood not to have been persuaded by the evidence assembled over 18 months by the FSA’s powerful enforcement arm. One FSA source said that the hurdle for finding an individual culpable was set higher than for a company.

The retreat is also awkward for the FSA because its former acting head of enforcement, David Mayhew, who led the tribunal battle against Sir Philip, leaves in three weeks to join Herbert Smith.

Sir Philip remains under investigation by the US Securities & Exchange Commission over his role in the scandal and faces a class action lawsuit by shareholders.

The FSA declined to say who else it had been investigating. Walter van de Vijver, the former exploration director, was seen by some as culpable after complaining in an e-mail that he was “becoming sick and tired about lying about the extent of our reserves issues”.