U.K. Treasury chief George Osborne is taking a tough line on the City, threatening jail terms for bankers if they manipulate the markets. However, some City-watchers warn that loopholes will prevent the measure from having any real bite.
Osborne launched a two-pronged attack on market manipulation Thursday at his speech at Mansion House in London. He confirmed a year-long joint review by the Treasury, the Bank of England and the Financial Conduct Authority (FCA) into the way wholesale financial markets operate. He also pledged to make the manipulation of the foreign currency, commodity and fixed income markets a criminal offence.
These new measures add to a financial services law last year that meant senior bankers in Britain could now face up to seven years in prison if they were found guilty of reckless misconduct in regards to interest rate rigging. This bill was part of a wide range of reforms to overhaul the country's banking industry in the wake of the 2008 financial crisis. It also separates the U.K. from a rules being drawn up by the European Union for increased regulation on market abuse.
"The (finance minister) sent a very clear message that maintaining fair and efficient markets is priority and he put forward the two levers that he has," Bill Nosal, the global head of product management at Smarts group which provides surveillance and compliance technology, told CNBC Friday. "It's really critical to the City that the markets are fair and official here."
A spokesperson for the U.K. Treasury confirmed to CNBC that the law is now being extended the reach these other benchmarks after previously focusing solely on the alleged rigging of interest rates. Before this, there was no specific offense set out for market manipulation but traders could have been prosecuted using fraud or insider dealing laws, the spokesperson said.
Conservative Party colleagues of George Osborne backed up his words calling the new measures a "sensible step." However, opposition policymakers in the U.K. are disgruntled that it has taken the finance minister so long to act on these issues in the sector, calling it "too little, too late".