Chancellor's market rigging crackdown protects himself, as well as City

By Joel Hills: ITV News Business Editor

London is one of a handful of cities in the world where the world comes to do business.

The financial transactions that take place in London employ a large number of often handsomely rewarded people and generate equally handsome tax revenues for the government. They also impact directly on the everyday lives of more or less everyone, influencing the price we pay to borrow money, to exchange currency and to fill up the car.

In recent years banks, many of them British, have been at the centre of wave of financial scandals, perhaps most memorably when traders were discovered to be manipulating Libor - a key interest rate.

In his speech at Mansion House tonight, the Chancellor will spell out the changes he wants to make to restore the rather tainted reputation of the financial markets.

As it stands, anyone who is found to have fixed Libor in future faces a prison sentence of up to seven years. George Osborne wants a year long review to consider making it a criminal offence to rig foreign exchange, bond and commodity markets too.

What's interesting is that a European Directive recently set out very similar rules. The Chancellor's plan is to opt out of this directive, we're told in order to ensure that they become law sooner than the deadline of 2016 that the EU had set.

Why the urgency? Well it just so happens that one of the markets the Chancellor is keen to target is already under investigation.

Allegations that traders within banks colluded to manipulate foreign-exchange rates in currency deals are being looked at by the authorities in the UK and abroad. The investigations are ongoing, the outcomes uncertain but the mood in the City is, let's say, "not optimistic".

The Chancellor is expected to say he is acting to protect "the integrity of the City" but some will also see this as an attempt to protect himself from accusations of failure to act should hefty fines start being imposed on banks in the run-up to the general election.

As if to make precisely that point, Cathy Jamieson MP, the shadow financial secretary, has already described the review as "too little, too late".