Could the UK start jailing bankers?

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.

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"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".

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The City of London has seen its fair share of scandals and critics are skeptical following the small number of prosecutions that have ended in a prison sentence. This criticism has been in the spotlight after a series of rate rigging allegations that were made in 2012. This was then followed by claims of manipulation in currency markets last year, which has led to some bankers being suspended from their roles and ongoing investigations from global regulators.

Rowan Bosworth-Davies, a financial crime consultant and former detective at London's Metropolitan Police fraud department believes that it's likely that no British-based banker would be jailed.

"The new rules will be window dressing and designed to give the impression of action. In practice I doubt if they will be capable of being enforced. Besides, there are perfectly good laws we could use now and which would stand a better chance of success. We don't need new laws," he told CNBC via email.

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Instead Bosworth-Davies would like regulators to use the laws it already has to mount some quick prosecutions. "Convictions alone will keep these men out of business forever," he added.

Nosal also told CNBC that he had some doubts. Despite new measures of surveillance being implemented in London, he said that it's likely that traders could work around those systems. He believes it is important to define a comprehensive program that covers all the different types of misbehaviors that are involved. The focus has been on the "front-running" of markets and also the rigging of interest rates, he said, however he believes detecting collusion and unfair pricing to customers should come under the same umbrella.