THE Financial Services Authority (FSA) is to crack down on equity derivatives trading in the wake of the rogue trader scandal that has rocked the French bank Société Générale.

Hector Sants, the FSA’s chief executive, and other senior executives at the City regulator called the top managers of investment banks in London on Thursday and Friday. They urged banks to check their risk management and systems controls.

City sources said the FSA plans to introduce new guidelines on derivatives trading to prevent a repeat of the fiasco at Soc Gen, where Jérôme Kerviel, a Paris-based trader took huge bets leading to a £3.7 billion loss.

Although the FSA yesterday refused to confirm it was considering new measures, it is understood they could be published within weeks.

The regulator is thought to be considering a more rigid separation of trading staff from banks’ “middle” and “back” offices, which deal with settlement and compliance.

The FSA may also look at whether staff who move from these functions to become traders - as Kerviel did – require special vetting.

It may also insist that banks do not allow large backlogs of trades to build up, as these are thought to provide cover for potentially illegal trading.

The move comes as the FSA’s record on regulation is under fire over the Northern Rock debacle.

On Friday, a powerful committee of cross-party MPs said in a 183-page report that the City regulator had “systematically failed in its duty” and alleged “the FSA did not regulate Northern Rock properly”.

The FSA and French regulators have launched an insider-dealing investigation into whether anyone profited from knowledge about the catastrophic problems at Société Générale.

The French bank took three days to unwind its positions at a time of wild movements in share prices. The probes will also look at unusual movements in other shares.

The City regulator has already raised concerns about the security of equity derivatives systems.

Last year, it looked at the matter in a project that was led by America’s Federal Reserve but also involved other leading European financial regulators.

The FSA, which is not the lead regulator of Soc Gen, is worried that many computer systems have not kept pace with the explosion in equity derivatives trading in recent years.

“There is a big concern in the industry that the quality of operational systems and operational support in equity and credit derivatives has been poor,” said one senior banker close to the regulator.

Kerviel’s losses – the biggest ever by a so-called rogue trader – have sent shockwaves through the investment-banking world.

The affair has fuelled speculation that Société Générale could be vulnerable to a bid.

Explore Industry Sectors

• Banking & Finance

• Construction & Property

• Consumer Goods

• Engineering

• Health

• Industrials

• Leisure

• Media

• Natural Resources

• Retailing

• Support Services

• Technology

• Telecoms

• Transport

• Utilities

Times Recommends

• B&B shareholders forced into funding rescue
• John Lewis department store sales plunge 8.3%
• Families turn to credit to cover mortgage bills