Robert Wardle, director of the Serious Fraud Office (SFO), said there was a strong case for allowing phone-intercept evidence to be admitted in court so that ?real? crimes such as insider dealing could be more easily prosecuted.

The SFO boss warned that unless measures were taken, the reputation of London as one of the world?s leading financial centres could be undermined.

Investors would conclude they were being ?disadvantaged in a rigged market? and would take their money and invest elsewhere, he said.

?We need to look at better ways of conducting investigations and better ways of trying these cases in court. And, particularly in the case of insider dealing, I think we need to look at greater use of investigation techniques that are not seen as traditional.?

He added: ?I also think the time is right for a fresh look at whether evidence from telephone intercepts should be capable of being used in courts.?

Officials say greater and more aggressive use of ?directed surveillance? would involve not just phone taps but placing covert recording ?probes? inside suspects? homes and offices.

Wardle?s intervention will reignite the debate over a key area of law-enforcement policy, placing it for the first time in the context of compliance in the City. Britain is one of the few countries that does not allow recordings of secretly intercepted telephone conversations to be used in court.

Ministers have so far bowed to pressure from Sir David Pepper, the director of GCHQ, the government?s eavesdropping centre, and Sir Stephen Lander, the chairman of the Serious and Organised Crime Agency. They argue that admitting phone-tap evidence in court will simply help criminals by exposing to public view the secret techniques used to track them down.

Sir Ian Blair, the Metropolitan Police commissioner, and Sir Ken Macdonald, director of public prosecutions, have urged ministers to lift the ban on phone-tap evidence. They point to America where many big prosecutions of terrorist and organised-crime figures are based on phone taps.

There have only been a handful of successful convictions for insider dealing in British courts. In the only case ever successfully brought by the SFO, four people were convicted of insider dealing involving leaks of confidential corporate-bid information being printed by Burrups, the security printers. Security sources say that it was also the only time that the SFO had called in MI5 to carry out secret bugging of suspects. Phones were not bugged, but eavesdropping probes were inserted into an office used by one of the suspects ? he was heard passing information to an accomplice.

In an interview with The Sunday Times, Wardle said he agreed with John Tiner, the outgoing head of the Financial Services Authority, who said earlier this month he was worried about the problem of insider dealing.

?At the SFO we will investigate cases and bring prosecutions when we find that insider dealing has occurred. They would normally be large-scale investigations because we only take the most complex and serious of the cases ? most are dealt with by the FSA. However, I am sure that John Tiner was right in being concerned about the problem and I am sure he is right to be concerned about professional criminals trying to infiltrate financial-services companies.?

Wardle said he disagreed with those who suggested insider dealing was relatively harmless.

?We are all victims,? he said. ?And as we are victims, the people who commit the crimes are real criminals. People who have been investing in the market . . . have lost out as a result.?