Financial regulators had a rare opportunity to show that they are serious about cracking down on insider dealing. They fluffed it. By ducking a criminal prosecution of Richard Ralph, a former ambassador, the Financial Services Authority risks playing into the hands of the sceptics who believe the practice is not really a crime, especially when the perpetrators are establishment figures.

Mr Ralph has, it's true, been clobbered with a serious fine of roughly nine times the profits he made from his cheating. But a penalty of £118,000 is hardly devastating for a man who got to the top of the diplomatic service and stayed there for years.

Nor will the fine have much of a deterrent effect. As the FSA itself points out, the threat of a criminal prosecution is a much greater deterrent to City wrongdoing than even the biggest fine. Loss of liberty for up to seven years and the stigma of a spell in Ford open prison really would make potential offenders think twice.

The FSA says that it has two main tests in deciding whether to prosecute rather than go down the civil route: is there sufficient evidence for a realistic prospect of conviction? And is it in the public interest?

In the case of Mr Ralph, the answer should surely have been an emphatic yes in both cases. He had confessed in full. There was no doubt about his dishonesty and his knowledge that he was acting dishonestly. The FSA had all the evidence it could possibly need.

As for the public interest, the case ticked all the boxes. The offence was serious. Mr Ralph benefited personally. He knew he was cheating. He ignored the warnings of his advisers. And he was a senior figure - executive chairman of a listed company and a former senior public servant.

The FSA argues that it decided against a criminal prosecution because Mr Ralph confessed and co-operated fully. There is some substance to this. Occasional leniency might help to elicit confessions from culprits who would otherwise try to brazen things out. But insider dealing is rampant and getting worse, according to the FSA's own figures.

Suspicious trading ahead of price-sensitive company announcements is as common as ever. Few things foster more suspicion of the City than insider dealing. Insiders who line their pockets at the expense of outside shareholders do the image of market capitalism enormous damage - damage it could certainly do without just now.

The occasional minnow is brought to book, but rarely a figure of the stature of Mr Ralph. Nothing would have enhanced the reputation of the FSA as a credible crime-fighting agency more than a scalp such as his.

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