The Financial Service Authority (FSA) is set to slash staff numbers.

The move is designed to free up cash to attract higher-quality personnel but has raised concerns that the City watchdog will lack resources to fight market abuse.

About 30 per cent of the organisation’s 200 enforcement staff will leave this year, Margaret Cole, the head of enforcement, said.

The move is expected to lead to a net 20 per cent decrease in headcount at the key unit.

An FSA spokeswoman said: "It's about having fewer, but better-qualified, more-experienced people.”

The acquisition of top talent is widely seen as key if the FSA is to press ahead with a move towards “principles-based governance”, where firms are charged with adhering to high-level regulatory objectives rather than given the responsibility of ticking boxes to comply with rules.

However, a leading City lawyer questioned today whether a slimmed-down FSA would be able to police market-abuse cases, such as allegations of insider trading, where the watchdog’s net has to extend beyond regulated companies to the public at large.

David Mayhew, a partner at Herbert Smith, who was acting Director of Enforcement at the FSA before Ms Cole’s appointment, told Times Online: “Regulating market abuse is notoriously resource heavy. Any cut in staff levels must lead to concern that this will be underresourced.”

The FSA has come under heavy fire from observers who say that it is not doing enough to crack down on areas such as insider trading and point to a lack of staff and the growing sophistication of would-be criminals.

A spokeswoman for the FSA admitted that the watchdog is forced to choose insider-dealing cases carefully, weighing factors such as the likely wider impact of a prosecution against tight resources.

About 70 per cent of the FSA's £300 million annual budget, which will remain unchanged, goes on staff salaries.

The enforcement unit has a budget aproaching £30 million.

The move to cut staff numbers is designed to help to attract high-calibre legal, accounting and supervisory staff, who can earn higher wages in the private sector.

One leading City lawyer said: “There is little question that the FSA has been hamstrung in having to compete with private firms. The FSA has for some time had serious issues in hiring quality people.”

The watchdog’s recruitment strategy is modelled on the US system, whereby staff regularly leave the regulators to move into private practice. They often join the regulator after a spell in the City.

In 2005 Ms Cole gave up a lucrative job with the US law firm White & Case to become director of enforcement for the FSA.

She replaced Mr Mayhew, who had left to join the law firm Herbert Smith after filling the role on a temporary basis.

Mr Mayhew's predecessor, Andrew Proctor, had resigned to join Deutsche Bank.

Last October Deloitte poached Kari Hale, the leading FSA accounting regulator, only weeks after the leading City law firm Clifford Chance hired Carlos Conceicao, the head of wholesale enforcement for the authority.

During his three-year tenure Mr Conceicao oversaw FSA cases against Shell, GLG and Citigroup.

Now he represents such firms against the FSA.

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