The legal fallout from the failure of Kaupthing Bank in Iceland is continuing.

Former Singer and Friedlander boss Tony Shearer, who headed the United Kingdom bank before it was taken over by Kaupthing in 2005, is taking legal action against the UK's Financial Services Authority.

He says the regulator ignored his warnings that the banks' new owners were unsuitable and the Icelandic regulator was incompetent.

He is also demanding a formal inquiry about why warning signs about Kaupthing were ignored.

At present, the UK bank is being investigated by the Serious Fraud Office, and its Icelandic parent is under criminal investigation in Iceland.

Meanwhile, two of the Icelandic bank's former executives are under arrest in Reykjavik.

Magnus Gudmundsson, the former head of Kaupthing Bank in Luxembourg, and former Kaupthing CEO Hreidar Mar Sigurdsson remain in police custody.

Sigurdur Einarsson, the former chairman of the board at Kaupthing Bank, hasn't responded to a police request to return to Iceland in connection with the arrests.

He has been invited to an interview with a special prosecutor next week.

The two other men were arrested immediately after such interviews.

Prime Minister Johanna Sigurdardottir says the arrests mark a milestone in her country's recovery from the banking crash.

She says they force the big players in the collapse to shoulder responsibility for it.

It seems the majority of Icelanders back her view, after a newspaper poll showing more than 96 percent supported the arrests.