Greater scrutiny for ‘bank-like’ hedge funds

Lord Turner said: "If there are activities such as hedge funds which are not at present bank-like or clearly systemically important, but could evolve in that direction in future, we need to gather the information required for regulators and central banks to assess the impact of these institutions and powers to extend prudential regulation to them."

He said regulators could probe the work of asset managers based in centres such as London and New York even if the funds themselves were based offshore. The FSA could then insist on higher levels of capital or impose other restrictions "if any institution or group of institutions develops bank-like features that threaten financial stability".

Lord Turner said offshore tax havens should be covered by global regulatory standards. He also called for greater regulation of credit-rating agencies. "Poor credit ratings and poor use of credit ratings played an important role in the crisis," he said.

"We must regulate credit-rating agencies to ensure rigorous analytical independence and ensure that they only rate instruments simple enough, and with enough historic record, to make rating possible."

Lord Turner predicted the end of complex investments such as CDOs which helped plunge the global economy into turmoil.