Darling to give market-abuse whistleblowers immunity

LONDON (Reuters) - The government plans to give its financial watchdog the power to grant whistleblowers immunity from prosecution in return for evidence on market abuse, Chancellor Alistair Darling told a newspaper.

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 mostly circumstantial.

The long-standing debate has been given new impetus by market turbulence and a raid on shares in mortgage bank HBOS (HBOS.L: Quote, Profile, Research) last week, which prompted the FSA and the Bank of England to make rare public statements reassuring the market they would clamp down on market abuse.

"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," Chancellor of the Exchequer Darling told the Guardian newspaper in comments published on Friday.

"People are getting away with it and the time has come for us to start looking at it again," he 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, but declined to comment further. For some observers, the new powers are an admission of defeat for the embattled FSA, which has favoured prevention over a U.S. enforcement-driven approach.

The regulator 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.

The Guardian said Darling planned to give FSA officials "specified prosecutor status", allowing them to grant immunity from prosecution in return for evidence against people suspected of market manipulation.