Speaking at a London conference a fortnight after the Sumitomo affair revealed massive and long-standing manipulation of the copper market, Sir Andrew said the financial services legislation was drafted more for investor protection than supervision of the markets.
The regulators had limited scope to act against market abuse on their own and their power to investigate suspected abuse outside the authorised firms was extremely limited, he said.
Unlike the US Securities and Exchange Commission, SIB's powers were limited to supervising exchanges rather than the broader issue of controlling market manipulation.
The UK system concentrated on enforcing good conduct on businesses authorised to work in financial services. But market manipulation and insider dealing frequently took place among people who were not running authorised businesses.
Sir Andrew said there was a credibility problem with criminal prosecutions for offences such as market manipulation and insider trading, because of the height of the hurdles that had to be scaled to succeed in court.
He added: "Abuse by the unregulated often seeks to exploit the benefits of regulated markets and yet undermines investor confidence in them. There are lessons we can learn from those countries which have chosen to adopt non-criminal remedies as part of their overall approach to dealing with cases of market abuse.''
Sir Andrew said he did not want to decriminalise market abuse and there would always be cases that merited prosecution. "But I do think that we should consider seriously the possibility of introducing civil powers, whether adminstratively or through the courts."
This would allow regulators to deal with cases that did not merit criminal prosecution. They could levy fines, order profits to be given back and make restitution to victims, whether or not the perpetrators were authorised investment businesses.
Sir Andrew also said the investor protection system needed to be improved. There were 20 different recognised bodies, which made the system difficult to understand, and some "strange anomalies" such as the ability of firms to choose their own regulator.
Sir Andrew further found it strange that the law limited SIB's scope for publicising the names of people banned from operating in the City.
He also wanted changes in the legal framework under which some of SIB's investigative powers could only be used if one of the other regulatory bodies asked it to intervene.