It should have been no surprise that the Financial Services Authority (FSA) sounded the alarm last week that “criminal gangs” are cashing in on insider dealing. What may be more significant was that it issued a wake-up call to the financial and legal professionals that the time has come to treat these breaches of the law with the seriousness they deserve.

It is well known that in the UK both the penalties for these offences and the number of prosecutions are much lower than in the United States. Convictions that carry a maximum of five or ten years in the UK could easily be five times heavier in the US. Small wonder that the Americans think we have a slack attitude.

But there are growing signs that this may be changing, as signalled most clearly by the suggestion from John Tiner, the outgoing chief executive of the FSA, that the UK Government should now consider granting the authority formal powers to offer immunity in exchange for hard evidence over cases such as insider dealing.

As a way of getting results, the prospect of immunity has proved effective in the US. That is why Robert Goldspink, the English managing partner of the London office of the US firm Morgan Lewis, welcomed last week’s FSA announcement as a step towards a “zero-tolerance” policy. “The FSA is a responsible regulator,” he says, “and I don’t see this as any kind of extreme reaction. It’s just that the FSA is now responding to the realities of the situation it faces.”

But not all English lawyers see it in quite those terms. Rod Fletcher, of Russell Jones & Walker, is concerned that the adoption of an immunity policy as a way of cracking insider dealing – or, indeed, fraud more generally – may “give a result” but it won’t necessarily deliver justice. “My fear is that it would discourage a full investigation and will, in fact, minimise and shape the investigation. It’s a kind of short cut that may not lead you to those who are the biggest offenders.”

Nonetheless, Fletcher suspects that we are already embarked on a course that is leading the UK down the US route. “In order to act as a real deterrent, you’ve got to make individuals feel responsible for the seriousness of their behaviour,” he says. In recent years, he explains, the criminalisation of executive behaviour – whether that be in terms of money laundering, operating cartels, insider trading – has grown significantly. “There are a lot of people who face criminal prosecution although they are by no means criminal characters,” he says. “Many boardroom members have simply not caught up with the implications of the legal changes that have taken place.”

Gerallt Owen, of Eversheds, agrees and adds that nothing galvanises attention more than a significant conviction. “Investment banks now need to tackle the risks,” he says. “They should not expose themselves to becoming a scalp in this area.”

Martyn Hopper, formerly with the FSA and now a partner with Herbert Smith, recognises that in the past in the UK has been lukewarm in acknowledging that offences such as insider trading amount to genuine crime. “Amongst the public, prosecutors and even judges there’s not really been a feeling that this is a breach of the Ten Commandments,” he says. “American prosecutors have been much more effective in getting across the idea that insider dealing undermines the very basis of the way that markets should work.”

Besides, adds Hopper, he has little sympathy for those who claim ignorance or confusion over the law. “I accept that there is the occasional innovatory or exotic financial product where there may be confusion about its legal status but, by and large, I don’t buy the idea that it’s all too complicated or there are grey areas of the law. Every corporate executive ought to be up to speed on this and understand what they can and can’t do.”

Whatever your perspective, though, it seems certain that those who become tangled up in this kind of prosecution will find that it drags on for years and that the level of support from any public funds for a defence will be minimal. And unless Gordon Brown decides to make it more difficult for the US authorities to secure extradition then we will see even more British business people en route to America to face charges. As Geralt Owen points out, globalisation means that increasing numbers of deals are done in dollars and, for that reason alone, British business people are exposed to scrutiny by the US regulators. As a result, they find themselves vulnerable to the long arm of the American authorities – even if the deal has no other US connection.

So, as a defensive measure, everyone – lawyers, accountants and banks as well as business – needs to double check their systems and ensure that nothing untoward can get through undetected. “By chance, before the FSA warning was issued last week, I suggested to my partners in America that we needed to review our systems and remind people of their obligations,” said Robert Goldspink. Sounds like wise advice.

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