Alistair Darling is set to give the FSA new powers to offer City whistleblowers lesser sentences or immunity from prosecution in return for information on market abuse.
In an interview with the Guardian, Darling indicated FSA investigators would be better able to prosecute market manipulators if they had plea-bargaining powers similar to those used by US regulators.
He said: “I can’t allow us to get into a situation where people quite deliberately manipulate markets for personal gain and with the potential to destabilise the financial system. We have a duty to ensure we have clean efficient markets. We will come down hard on people manipulating the system.
“People are getting away with it and the time has come for us to start looking at it again. If a handful of people are up to no good we have to make sure the authorities have the tools to do the job.”
The move comes after scaremongering in the City destabalised HBOS’s share price last week.
Liberal Democrat Shadow Chancellor Vince Cable says: “It is about time the FSA was able to take effective action to prosecute and curb criminal market abuse of the kind which destabilised HBOS last week. It has become apparent that, although it was possible to identify the people who benefited from HBOS short selling, the authorities were unable to gather sufficient evidence to bring a criminal prosecution. Failing to provide the FSA with the same whistleblowing powers as other agencies was clearly an oversight, which has been belatedly put right.”
Conservative Shadow Chief Secretary to the Treasury Philip Hammond says: “We support effective measures to tackle market abuse but this is a very minor initiative. Any regulatory response must be measured and careful, London has benefited enormously from over-regulation in other markets. It would be a tremendous own goal to respond to the current difficulties with ill-targeted and burdensome regulation as a knee-jerk reaction.”