FSA stays a watchdog 'with teeth' over boom in gambling on CFDs

Britain's new coalition government said last week it will dismantle the FSA by 2012, handing its prudential powers to the Bank of England and setting up one body for consumer protection and markets and another to tackle serious economic crimes.

But director of enforcement Margaret Cole told an FSA conference it was vital that enforcement was kept up during the transition period and that the pipeline of cases was not disrupted.

"We must build on this process, not lose it...it's so vitally important not to tinker with something that has made real progress," she said. Ms Cole said she had been keeping close tabs on illegal activities in the sale of small caps to investors.

But faced with that closer scrutiny, some small cap sellers were moving on to selling CFDs, which allow investors to take a punt on changes in share prices without ever owning the stock.

"We are showing that the FSA has teeth and we know these teeth have to stay sharp. What we are not facing is any reduction in demand for strong enforcement action," Cole said.

The FSA has become far tougher on market abuses since its new "credible deterrence" policy was introduced in 2007, partly in a bid to shed a reputation for a light touch.

"I think the FSA can be proud of its record since implementing credible deterrence," FSA Chief Executive Hector Sants told the conference.

Mr Sants, who will head the Bank of England's new regulatory arm, said it was important that the policy of credible deterrence continued.