The news that the Financial Services Authority led by Callum McCarthy is to face scrutiny by the National Audit Office is causing frustration in some quarters of the City of London.

Leaving aside a number of recent decisions, which have placed the FSA on the back foot, McCarthy believes he needs City backing in his attempt to keep regulation of London’s major markets, like the London Stock Exchange, within London’s own rules.

He believes the notion of regulation of an exchange, whether Liffe or the LSE, transferring to where the assets are owned will fail on “legal, practical and political grounds”.

Alex Brummer in the Daily Mail writes: “The idea, for instance, of the Liffe market being regulated from Paris where Prime Minister Dominique de Villepin believes it his job to reorganize the board of Airbus maker EADS — is ludicrous.”

Sir Callum McCarthy joined the FSA in September 2003 from the Office of Gas and Electricity Markets where he was Chairman and Chief Executive. He had previously held senior positions in Barclays Bank, BZW and Kleinwort Benson, as well Department for Trade and Industry.