Andrew Verity BBC personal finance reporter

The City's "super-watchdog", the Financial Services Authority (FSA) gets its full legal powers this weekend, heralding a much tougher regime where it can pursue anyone - not just registered City firms - for financial abuses.

Until now the watchdog has been restricted under old laws which meant it could only act against registered City professionals.

The watchdog will now have the power to launch criminal prosecutions or levy unlimited fines against any individual.

Instead of statutory powers, it merely did the work for more than ten "self-regulatory bodies" - non-statutory regulators paid for by member firms which had to be registered to conduct business.

That has hampered investigations into financial crimes such as the Sumitomo copper scandal in 1996, where a rogue trader at the London Metals Exchange lost �1.5bn of his bank's money trying to manipulate the copper price.

City watchdogs were unable to prosecute the trader, Yasuo Hamanaka, because he was not directly regulated, even though his crimes took place in London. Prosecuted in Tokyo, he later admitted forgery and fraud.

We intend to be a reforming authority, constantly on the lookout for changes which will reinforce the statutory objectives handed down to us by Parliament

Howard Davies, FSA chairman

Similarly, only a handful of people have gone to prison in the last ten years for the crime of insider dealing because of the difficulty of proving it beyond doubt.

In the past five years only two people have gone to prison for the offence, with five others fined.

The FSA will now investigate under a new civil offence of market abuse that requires a lighter burden of proof.

Judge and jury?

Anyone, from a trader to a share tipper on the internet, could face an unlimited fine if they breach the FSA's Code of Market Conduct.

The FSA's powers to investigate, prosecute and impose fines have led many in the financial community to fear it will be too powerful - acting, according to advertising guru Maurice Saatchi, as "judge, jury and executioner".

However, the FSA's chairman Howard Davies dismisses the objection, which he says is no longer relevant.

A Regulatory Decisions Committee, composed of retired directors of major companies and consumer representatives, will have oversight of decisions if individuals believe they have been treated unfairly.

He says the FSA's aim is to maintain a "proportionate approach".

"We intend to be a reforming authority, constantly on the lookout for changes which will reinforce the statutory objectives handed down to us by Parliament."

Carol Sergeant, the former Bank of England official in charge of enforcement at the FSA, says instead of imposing a heavy burden of bureaucracy on everyone it regulates, the aim is to develop a "risk-based approach" - where instead of using the same checks on every firm the FSA focuses on areas or companies where it sees a likelihood of something going wrong.

The FSA has already been heavily criticised, not least by its own internal auditors, for serious failings in its handling of the collapse of Equitable Life, the mutual life insurer whose policyholders have lost nearly a third of their investment since it was forced to stop doing business last December.

It has also been criticised for being slow to act in the collapse of Independent Insurance, the general insurer which went bust earlier this year.

Calls for action

The Consumer's Association is urging the watchdog to "show its teeth".

"This is a real opportunity and challenge for the regulator to work proactively to protect consumers, to prevent financial scandals and to ensure consumer confidence when investing in the industry," said the director of the Consumers' Association, Sheila McKechnie.

"A consumer focused regulator is needed now more than ever to improve industry performance and consumer confidence in a sector dogged by scandal."

Separately, financial consultants are warning that most firms which will come under the FSA's ambit will not be in a position to comply with the new regime from tonight.

KPMG has warned that most financial firms have yet to alter their systems and could find themselves on the wrong side of the law.