UPDATE 2-UK to crack down on market abuse with new powers
(Adds FSA, Treasury, details)
LONDON, March 28 (Reuters) - Britain plans to give its financial watchdog new powers to fight market abuse, including the ability to grant whistleblowers immunity from prosecution in return for evidence, Finance Minister Alistair Darling said.
The Financial Services Authority (FSA), often criticised for failing to secure enough market abuse convictions, has long called for more powers to combat the practice, including the ability to grant immunity to witnesses, along the lines of a U.S.-style whistleblower system, and plea-bargaining.
Regulators say this would help them track down the crucial "smoking gun" in cases where evidence is often circumstantial.
The long-standing debate has been given new impetus by market turbulence and a raid on shares in mortgage bank HBOS HBOS.L last week, which prompted the FSA and the Bank of England to make rare public statements reassuring the market they would clamp down on rogue trading.
"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," Darling said in comments published in the Guardian newspaper on Friday.
"People are getting away with it and the time has come for us to start looking at it again," the chancellor of the exchequer said. "If a handful of people are up to no good we have to make sure the authorities have the tools to do the job."
An FSA spokeswoman said the watchdog welcomed the proposals.
"The new powers proposed by the government are essential to our toolkit for tackling market abuse. We have been requesting these powers for some time," she said.
The FSA has struggled to take action against those found to be manipulating the market. It has not brought a criminal case for insider dealing since it took over responsibility for initiating prosecutions in 2001, in part because of the difficulty of tying leaked information to its misuse.
TACKLING ABUSE
Leading lawyers welcomed the stronger powers, but cautioned immunity has been rarely used by other UK authorities which already have access to it, from the Serious Organised Crime Agency (SOCA) to the Serious Fraud Office (SFO).
Immunity can be difficult to use early in a probe and carries the risk that evidence obtained may be unusable.
"There needs to be clarity around the circumstances in which immunity is used, to ensure it is not misused," Roger Best at law firm Clifford Chance in London said.
Without clarity, Best said, the FSA could struggle to motivate whistleblowers to come forward.
The Treasury plans to give FSA officials "specified prosecutor status", allowing them to grant immunity in return for evidence against people suspected of market manipulation. A form of plea-bargaining -- lesser sentences in exchange for evidence -- is also expected to be included.
A 2005 law, the serious organised crime and police act, already grants this status to some authorities, but Friday's proposals would explicitly include the FSA.
Darling said the plans to boost the FSA's powers were part of a package of measures to deal with the current market uncertainty, adding he had held talks with U.S. Treasury Secretary Henry Paulson on the plea-bargaining system.
The FSA is going through one of the toughest periods since it was set up in 2000, coming in for harsh criticism over its role in the crisis at mortgage bank Northern Rock.
For some observers, the new powers are an admission of defeat for the embattled FSA, which has long favoured prevention over a U.S. enforcement-driven approach. (Additional reporting by Sumeet Desai; Editing by Erica Billingham, Quentin Webb and Mike Elliott)
