By Jon Craig, Chief Political Correspondent
New moves to clean up money markets and stamp out abuses like the Libor interest rate-fixing scandal are to be announced by George Osborne in his annual Mansion House speech later.
The Chancellor plans to bring in criminal sanctions with tough penalties for rigging financial markets and opt out of EU rules on market abuses because they are not tough enough, he claims.
Addressing the City's top bankers, investors, economists and analysts, Mr Osborne will vow to raise standards of conduct in the London's financial system by beefing up the regulatory and enforcement regime.
He will also launch a joint review by the Treasury, the Bank of England and the Financial Conduct Authority (FCA) into the way key wholesale financial markets operate.
In his speech, Mr Osborne will say strong and successful financial services that set the highest standards are an essential part of building a resilient economy.
"The integrity of the City matters to the economy of Britain," he is expected to say. "Markets here set the interest rates for people's mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy.
Mr Osborne plans to get even tougher on market abuse "I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them."
His pledges will include:
:: Extending legislation the Government put in place to regulate Libor to cover foreign exchange, fixed income and commodity markets, including bringing in new criminal sanctions;
:: Extending City banking rules to cover all banks that have a presence in the UK, bringing in foreign banks that have branches here;
:: Expanding the tough UK criminal regime for market abuse. As part of this, the UK will not opt in to EU rules, says Mr Osborne.
"Our own rules will be as strong or stronger than those of the EU, but will preserve flexibility to reflect specific circumstances in the UK's globally important financial sector," Mr Osborne will claim. He says the Government will consult on these steps in the Autumn.
Labour says the Chancellor's proposals are 'too litttle, too late' The review of markets proposed by Mr Osborne comes at a time of serious allegations of misconduct in the financial markets, in foreign exchange, commodities and fixed income. The review will consider the scope of regulation, the role of industry standards and the need for additional resources, he says.
The review will run for 12 months and make recommendations for further action to strengthen the operation of fair and effective global financial markets, some of which may require international agreement, the Chancellor will say.
The review will be led by the Bank of England's new Deputy Governor for Markets and Banking, Minouche Shafik, with Martin Wheatley, Chief Executive Officer, FCA, and Charles Roxburgh, Director General Financial Services, HM Treasury as co-chairs.
A panel of market practitioners will also be appointed, to involve and reflect the views of the financial services industry in the Review. This panel will be chaired by Elizabeth Corley, CEO of Allianz Global Investors.
Dismissing the Chancellor's proposals, Cathy Jamieson MP, Labour's Shadow Financial Secretary to the Treasury, said: "This review is too little, too late. We pressed Ministers to regulate commodities markets and the full array of financial benchmarks back in 2012, but the Chancellor failed to act."
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