The Financial Services Authority (FSA) mounted a fierce defence of its regulation of the oil markets yesterday amid growing criticism that its approach may be contributing to manipulation and prices of nearly $150 a barrel.

At a hearing of the Treasury Select Committee, Alexander Justham, the FSA's director of markets, admitted that only five people were responsible for overseeing all the futures traded on ICE Europe, one of the world's largest commodity exchanges.

ICE Europe controls about 30 per cent of the global crude oil futures market and also offers contracts in everything from natural gas to electricity, carbon emissions and coal.

The Commodity Futures Trading Commission (CFTC), America's commodity market regulator, wants to extend US-style trading limits to the US crude oil futures contract traded on ICE Europe.

The proposals, which could come into effect within three months, are intended to stop traders evading position limits in the United States by trading on ICE Europe, a practice that American critics have called the “London loophole”.

The FSA is understood to have resisted these attempts and reserves the right to veto the CFTC's plan, although Mr Justham insisted that the FSA's relations with the CFTC remained good. “We have exactly the same philosophy, just expressed and managed differently,” he said.

The British regulator has not brought a single enforcement action for commodity market manipulation in the past five years, despite dozens of such actions being brought in the US, the committee was told, but Mr Justham rejected claims that Britain's light-touch regulatory approach represented a loophole open to exploitation.

In response to a question from Andrew Love (Lab, Edmonton) about whether the British regime was robust enough to deter potential abuse, Mr Justham insisted that it was.

He said. “We have launched a number of investigations in recent years ... but there is not huge evidence of market abuse.” He said that despite numerous American efforts to prosecute market manipulators, only one successful action had taken place in recent years.

Nick Ainger (Lab, Carmarthen West & South Pembrokeshire), a committee member, said that the lack of transparency and basic information about the size of the global oil market rendered the FSA's claims meaningless. “What is coming out is that there is a lack of information about the market,” he said. “How do you know there is no market manipulation?”

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