* FSA closes investigation into RBS
* FSA found no fraud or dishonest actions by top RBS staff
* RBS staff competence considered in future job applications (Adds further background, detail)
By Sudip Kar-Gupta and Kirstin Ridley
LONDON, Dec 2 (Reuters) - Britain's financial regulator cleared Fred Goodwin, the controversial former chief executive of Royal Bank of Scotland, of wrongdoing after closing a lengthy investigation into the bailed-out bank.
The Financial Services Authority (FSA) said on Thursday that RBS had made a series of bad decisions in the years immediately before the financial crisis, such as buying Dutch peer ABN AMRO and expanding aggressively in investment banking.
But it added that these decisions did not stem from a lack of integrity by any individual, and they found no instances of fraud or dishonest activity by RBS senior individuals and no failure of governance by the board.
"The issues we investigated do not warrant us taking any enforcement action, either against the firm or against individuals," it said.
"However, the competence of RBS individuals can, and will, be taken into account in any future applications made by them to work at FSA regulated firms," it added.
Goodwin presided over an aggressive acquisition strategy at RBS, and his policy of often generating savings by cutting jobs earned him the nickname Fred The Shred.
However, the credit crisis of 2008 left his plans in tatters due to RBS's exposure to the United States' property market slump, toxic assets and a decline in fortunes at ABN AMRO.
The bank had to be propped up with 20 billion pounds ($31 billion) of taxpayers' money, prompting his eventual resignation.
After public anger over his 703,000 pound annual pension package, he eventually agreed to reduce it to 342,500 pounds.
Goodwin has since found work as an advisor at architecture company RMJM, and his former RBS cohort Johnny Cameron has also since found work at boutique investment bank Gleacher Shacklock.
Shares in RBS, 80 percent of which are owned by the British state, were up 2.4 percent at 40.82 pence by 1030 GMT, while the European banking sector was up 1.1 percent. (Editing by Will Waterman) ($1=.6410 Pound)