Financial regulator rejects Tory call for probe

Sir Howard Davies, chairman of the Financial Services Authority, on Tuesday told the cross-party Treasury select committee that he had no mandate to comment on the government's behaviour.

However, the FSA has written to the rail operator to ask for details of what it knew and when.

"Whether the government has made any misleading statements in relation to a listed company which could amount to market manipulation at the moment [comes under] the authority of the Department of Trade and Industry," Sir Howard said.

The FSA's involvement will be limited to enforcing the listing rules, which demand that companies tell the market about material changes immediately.

The FSA will not be able to take action against un-regulated people or government agencies for misleading markets until it gains new powers in December. These will not apply retrospectively.

Sir Howard said he was first told about the government's decision to put Railtrack into administration late on Friday afternoon, after the market closed.

If Railtrack knew about the problems earlier the FSA could start an investigation. Sir Howard confirmed, though, that the maximum penalty for a listed company was limited to a public censure. There was no evidence that insider trading, which carries harsher penalties, had taken place.

Sir Howard's refusal to discuss the government's action led Andrew Tyrie, a Tory member of the committee, to warn that his appearance of independence was compromised. "Frankly, the pressure the government can put on Howard to act in the way they want is enormous," he said. "Since he is a government appointment some form of check [such as a non-executive chairman] is needed to ensure independence."

The City was unlikely to back future public-private partnerships, a key part of government policy, unless the government started following FSA disclosure rules, he suggested.

"If the government wants to go to the capital markets in PFI and PPP projects they will eventually have to submit themselves to similar requirements for disclosure of information to those imposed on listed companies," he said.

Separately, Sir Howard also said he would consult listed companies about changing the rules to allow the FSA to talk about its investigations under certain circumstances. He said it was a "matter of some frustration" that when investigations were under way the regulator was not allowed to discuss them.