A fifth of company announcements in Britain are preceded by unexplained share price moves, the Financial Services Authority (FSA) said on Tuesday, in its final report before being wound up next year.
The FSA, criticised by policymakers for failing to spot the risk of the financial crisis that was coming, said that 19.8 percent of merger announcements last year were preceded by unusual market moves, seen as an indication of possible insider trading.
Unexplained moves dropped a fifth in 2010 to 21.2 percent. Both years were the lowest since 2003.
The watchdog has pursued a high-profile "credible deterrence" policy, imposing its highest ever fine on an individual for market abuse of $9.6 million on Rameshkumar Goenkaon.
The pace of its market clean-up is now slowing. One of its main architects, head of enforcement Margaret Cole, has already left, and chief executive Hector Sants leaves this month.
"The FSA must be disappointed to report that suspicious price movements remain at a stubbornly high 20 per cent despite vigorous activity against insider dealing," said Simon Morris of law firm CMS Cameron McKenna.
"The market will view with interest whether the FSA's replacement, the Financial Conduct Authority, will have greater success - possibly aided by new powers being devised in Brussels."
The FSA is being scrapped in 2013 and its operations will be split between a new prudential regulation authority at the Bank of England, and a standalone Financial Conduct Authority.
An internal division of operations began in April, preceded by several high-profile departures, and cost 11.4 million pounds, slightly ahead of the 10.9 million budgeted. The full cost of creating two new units will be 115-150 million pounds.
Adair Turner, who became FSA chairman just as U.S. bank Lehman Brothers collapsed in September 2008, spoke of "tumultuous external events and major internal transformation".
"I am convinced that a ‘twin peaks' model will deliver major benefits," Turner said.
Sants said there was "nothing more" the FSA could have done during a financial crisis that saw Northern Rock nationalised and taxpayers owning most of Royal Bank of Scotland. The watchdog has already admitted failings.
"I also believe that without our actions it would have been worse," Sants said.
"Above all, what I am most proud of is not what the FSA has achieved ... but the way we have responded to how we go about regulation, our willingness to learn, and change in the face of difficult conditions and what has at times felt like relentless criticism," Sants added.
He reaffirmed that new rules on the sale of financial products, known as the retail distribution review or RDR, will come into force at the end of this year.
Royal Bank of Scotland said on Tuesday it was making more than 600 staff redundant as a result of RDR which will require retail financial products to be sold by more highly qualified staff and charged a fee.
(Reporting by Huw Jones; Editing by Elaine Hardcastle)