By Kate Holton
LONDON (Reuters) - Britain's media regulator gave pay-TV firm BSkyB a clean bill of health on Thursday, saying there was no evidence it was linked to a phone hacking scandal which has engulfed Rupert Murdoch's News Corp, its largest shareholder.
The investigation by Ofcom, which has clashed repeatedly with BSkyB in the past, had hung over the hugely successful group and raised the prospect of News Corp being forced to sell down some of its near 40 percent holding.
"To date, there is no evidence that Sky was directly or indirectly involved in any of the wrongdoing either admitted or alleged to have taken place at News of the World or The Sun," Ofcom said, referring to News Corp newspapers.
It concluded BSkyB was "fit and proper" to hold a broadcasting license.
Prompted by the admission that journalists at Murdoch's now-defunct News of the World tabloid had hacked into phones on an industrial scale, Ofcom examined whether News Corp was an appropriate owner and whether James Murdoch, Rupert's son, was an appropriate director.
It found News Corp to have acted properly and said that although James Murdoch's conduct in relation to events at the News Corp newspapers had repeatedly fallen short of the standards expected of someone in his position, there was no evidence to suggest he had deliberately engaged in wrongdoing.
James Murdoch is a former chief executive and chairman of BSkyB who was in charge of News Corp's British newspaper arm when the scandal escalated last year. He stepped down as chairman of BSkyB in April in a bid to protect the company's reputation from being damaged.
The admission of wrongdoing at Murdoch's powerful British newspaper arm, including the detail that staff had hacked into the voicemails of a murdered schoolgirl, sent shockwaves through the political and media establishment last year.
Under pressure for his own close ties to Murdoch's media group, Prime Minister David Cameron ordered a judge-led inquiry to investigate the scandal while journalists at Murdoch's daily Sun tabloid are still being arrested over allegations of illegal payments to public officials.
The issue of whether the Murdochs were "fit and proper" to run a British media company has become a recurring theme, after a parliamentary committee said the scandal had shown Rupert Murdoch not to be fit to run a major international company.
More than 80 people have now been arrested in total over allegations of phone hacking, illegal payments, computer hacking and attempts to pervert the course of justice.
The sense of public outrage also forced News Corp to pull its $12 billion bid to buy the rest of BSkyB it did not already own.
"This was, on balance, expected but it definitely removes an overhang on the stock," Liberum analyst Ian Whittaker said of Ofcom's findings. "This wasn't seen as a huge threat to the business but ... this was seen as a risk, because Ofcom and Sky don't have a great relationship."
Shares in BSkyB were up 1 percent against a wider FTSE 100 Index which was down 0.7 percent.
"As a company, we are committed to high standards of governance and we take our regulatory obligations extremely seriously," BSkyB said.
(Editing by Dan Lalor and Mark Potter)
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