Watchdog head says market abuse level unacceptably high

Hector Sants, who will step down as chief executive of the Financial Services Authority this summer, said the regulator will expand by more than 10 per cent and hire another 460 staff for a more intrusive and interventionist role.

He said: "There is an unacceptably high level of market abuse in the UK. We need to work to reduce that.

"There's no evidence that the UK marketplace is worse than other major financial centres, but I don't think that should be our benchmark.

"Our benchmark should seek to have a market that participants really believe to be clean and fair and, as a general test, I think that if you were to ask the market participants, they would share my view that there is too much market abuse."

His comments came after the FSA secured a 21-month jail term for Malcolm Calvert, a former head of market-making at Cazenove, following his conviction for insider trading in the FSA's largest prosecution to date.

The FSA, which has more than 500 people tackling enforcement and financial crime, will outline how it plans to use its additional staff when it presents its business strategy this week.

The expansion is being funded by a near-10 per cent rise in regulatory fees. The FSA will have 3,700 staff, enabling it to become much more pro-active, particularly in tackling the high-risk culture of the sector.

In terms of consumer protection, the FSA announced on Friday that it would vet products to ensure they were suitable before sale, rather than focusing on helping consumers to get redress once problems emerge.

It currently waits for clear evidence that a product has been mis-sold and consumers harmed before taking action.

The regulator will work closely with firms as they develop financial products to see if they contain risks for consumers.

It will also look at how products are promoted and sold, with FSA staff acting as mystery shoppers to spot potential mis-selling scandals before they develop.