Treasury eyes whistleblower plan

The Financial Services Authority has welcomed the plans

The City watchdog is to get powers to offer immunity from prosecution to those providing evidence about market manipulation, under Treasury plans.

The chancellor wants legislation which would bolster the strength of the Financial Services Authority (FSA).

It follows shares in HBOS being driven down last week by what the FSA called "false" rumours about the bank.

The FSA has struggled to take action against those suspected of wrongdoing in the City.

'Welcome move'

In an interview with the Guardian, Chancellor Alistair Darling said that the plan to offer immunity to whistleblowers was part of a package of measures needed in a "period of unprecedented uncertainty".

We have a duty to ensure we have clean and efficient markets Alistair Darling

"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," he said.

"We have a duty to ensure we have clean and efficient markets. We will come down hard on people manipulating the system."

The chancellor has been talking to the US Treasury Secretary, Henry Paulson, about a similar system which operates in the United States.

It is understood that the FSA would get plea bargaining powers which are currently enjoyed by other organisations, including the Serious Fraud Office and the Home Office.

Under the proposals, which would have to be introduced through legislation, the watchdog would get "specified prosecutor status".

The FSA told the BBC it had lobbied for such powers for some time and that it would welcome the move.

It has previously found it difficult to take action against those suspected of manipulating the markets.

Circumstantial evidence

However, Chris Brennan, partner at law firm Barlow Lyde & Gilbert, said he was uncertain that the changes would succeed in eradicating market manipulation.

"It is extremely difficult to prosecute," he told the BBC. "Insider dealing often involves purely circumstantial evidence that is not sufficient in most criminal cases.

"I am not sure how much the whistleblowing provisions will help, but the plea bargaining may well incentivise individuals to plead and avoid the need for a trial."

Profit

After the HBOS incident, which saw the bank's shares slump by as much as 17%, the FSA said that it would "not tolerate" traders starting "false" rumours about firms to make cash from dealing in their shares.

"There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling," the FSA said in a statement last week.

In short-selling a trader borrows shares, sells them immediately and hopes to repurchase the shares in the future at a lower price.

The trader can then return the shares to the lender and make a profit on the difference.