David Prosser: Watchdog's bark is worse than its bite

Outlook In this brave new world of better financial regulation, we can presumably rest assured that any transgressions by City folk will be viewed pretty dimly by the powers that be. Well not if the case of two Dresdner Bank traders who have just been convicted of insider trading is anything to go by.

These chaps were caught red-handed doing the sort of thing that has been going on in the City since time immemorial. The pair worked for a subsidiary of Dresdner that owned $65m worth of Barclays bonds. One morning, they were quietly sounded out about a new bond issue planned by Barclays for later that day and quickly twigged that the more favourable terms on offer would have a negative effect on the value of their existing holding – so they promptly flogged it to two clients. Just five hours later, when Barclays announced its new issue, the clients in question found themselves $66,000 worse off.

The FSA pulls no punches in its description of the case, describing it yesterday as "insider dealing". The Dresdner duo, however, chose to contest the charges and asked the FSA's Regulatory Decisions Committee to rule on their fate. It found them guilty and handed down the awful punishment of, wait for it, public censure. No fine was deemed necessary, let alone a disqualification from trading – a bit of public shame was their only punishment.

If that's how regulators deal with such a clear case of flouting the rules, what hope is there? The traders' defence seems to have been that this sort of thing is market practice in the bond industry (they were apparently sounded out about the new issue, rather than being given chapter and verse). Somehow, that makes the leniency of their treatment seem all the more shabby.