A former British ambassador has been fined £118,000 for insider trading after he bought shares in a mining company he chaired while negotiating in takeover talks.

Richard Ralph, the former executive chairman of Aim-listed mining company, Monterrico Metals, was fined £117,691.41 by the Financial Services Authority, and his friend, the Belgian businessman Filip Boyen, received a £81,982.95 penalty for dealing in Monterrico's shares on the basis of inside information.

Ralph, a former ambassador to Peru and governor of the Falklands, was also involved in the Mittal steelgate affair when he served as Britain's ambassador to Romania.

His fine is one of the biggest the FSA has imposed on an individual for market abuse. The biggest was a £750,000 penalty imposed on Philippe Jabre, a former managing director of hedge fund GLG Partners, in 2006. This year, the financial watchdog has issued two other fines for market abuse.

In January 2007, Monterrico, which operates the Rio Blanco copper mine in Peru, was known to be in takeover talks with a Chinese mining consortium, but the details were confidential. On the 28th of that month, Ralph, who was involved in the takeover discussions, asked Boyen to buy £30,000 worth of Monterrico shares on his behalf.

Over the next five days, the Belgian businessman, acting on the inside information provided by Ralph, bought Monterrico shares worth £30,533.59 for Ralph, and £77,162.05 worth of shares for himself.

After the company's takeover was announced on February 5, 2007, Boyen sold all the Monterrico shares making a profit of £12,691.41 for Ralph and a profit of £29,482.95 for himself.

Margaret Cole, director of enforcement at the FSA, said: "This sort of self-serving behaviour by experienced business professionals has the potential to damage confidence in financial markets."

She said both men cooperated fully with the FSA's investigation, "and as such we were more lenient. But for that cooperation, we would have seriously considered taking criminal proceedings." Their fines were reduced by 30% under the FSA settlement discount scheme, as the pair's "extensive cooperation" meant the investigation was resolved at an early stage.

Six years ago, Ralph was drawn into the controversy surrounding the attempt by Labour party donor Lakshmi Mittal, the steel tycoon, to take over Sidex, a Romanian steel plant. The row was over a letter drafted by Ralph and signed by Tony Blair on behalf of Mittal.

The FSA has been criticised in the past for not being tough enough. Earlier this year, it launched a probe into HBOS share moves, which was later dropped. The FSA failed to find evidence that short-sellers spreading false rumours had driven down the share price by 17% on a single day in March.