Plumber working on a gas boilerHome repairs group Homeserve has revealed it is being investigated by the City watchdog in the wake of accusations over mis-selling and failures in complaints handling.

And the Walsall-based group, which has 2.7 million customers with 6.7 million policies insuring against and repairing burst pipes, broken down boilers and electrical problems, said it would downsize its UK operation as it struggles to bounce back from the crisis.

Homeserve, which saw its shares slide 23% on the FTSE 250 Index, wiping nearly £200 million from its value, said the Financial Services Authority (FSA) would look at "certain historic issues".

The group, which revealed an 8% rise in underlying pre-tax profits to £126 million, said it had taken longer to restore activities since suspending telephone sales after discovering possible mis-selling of its household emergency policies.

Richard Harpin, Homeserve chief executive, said: "In the UK we are planning to create a smaller, more focused and sustainable business from which to grow."