Watson claimed that hedge funds "stand to gain millions" by knowing the outcome of the EU referendum through their private polls and called on Prime Minister David Cameron to ban them from approaching pollsters.
Watson told The Guardian: "Hedge funds who commission their own private exit polls stand to make many millions of pounds learning the likely outcome of the referendum hours before the UK government and the British people find out if we have voted to leave or stay in the EU.”
The senior Labour politician went on to say that obtaining information about the impact of Brexit on sterling shouldn't be the prerogative of only the privileged few.
He said: “In the longer-term, it’s time we took a long, hard look at how the opinion poll industry in the UK, whose findings are often unreliable, impacts on our elections, media coverage and political decision-making.”
"Hedge funds should be allowed to do their own research"
Mark Garnier, a former investment banker who sits on the Treasury select committee, disagreed with Watson's comments saying it's "perfectly legitimate" for hedge funds to carry out their research.
He told City A.M: "Anyone can commission a private poll if they want. It's a free world and we haven't blocked people from freedom of choice on how to spend their money. It seems like perfectly legitimate research to me so they should be allowed to do what they want.
"However, Brexit would be very bad for the UK so it may be a little tasteless for hedges to profit from other people's potential misery. But the Brexit camp must explain why they campaign for economic disaster," he added.
Ben Page, chief executive of pollsters Ipsos Mori, said that there had been "increased interest" in referendum polling but "client confidentiality" prevents them from giving details of which companies have approached them.
The in-out referendum on the UK's membership of the European Union takes place on 23 June.