The level of possible insider trading prior to takeover announcements has barely changed since the Financial Services Authority took power with nearly a quarter of all mergers prefaced by potentially unscrupulous dealing. The revelation could lead to the regulator bringing a high profile insider trading case in the next year, one City lawyer predicted.

In its analysis of 2005 trading data the FSA found that there was possible "informed trading" ahead of takeover announcements in 23.7 per cent of cases. Although this was a reduction from the 2004 figure of 32.4 per cent, the level of potential "informed trading" has hardly moved from the 2000 figure of 24 per cent. The regulator said the figures were a matter for concern.

"There will be no let up in our efforts to tackle the problems in this area. These results reinforce the importance of our ongoing work on market abuse and in particular our current review into the handling of inside information in mergers and acquisitions," said Sally Dewar, FSA markets division director.

One area where the regulator does seem to have had success is clamping down on "informed trading" prior to company announcements. In 2004/05 only two per cent of company announcements were preceded by share price swings, compared with 11.1 per cent in 2002/03.

Philip Rubens, head of Finers Stephens Innocent's financial services practice, said that there was much more potential for abuse with takeover information as far more people were likely to be "in the know" than on a company announcement. Nevertheless he believes the regulator would try and clamp down on unscrupulous trading over the next year.

"I think you will find that the FSA wants to put a marker in the sand and to demonstrate to market professionals and others that it is a prosecutor they will attempt to bring criminal prosecutions for insider dealing within 12 months because clearly people appear to be misusing insider information in large numbers. I imagine the FSA will want to demonstrate that it is an effective regulator," he explained.

The FSA looked at the extent to which share prices moved ahead of regulatory announcements that companies made to the markets.