People should “be very frightened” of the City regulator, Financial Services Authority chief executive Hector Sants told the City today.

“There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.”

Speaking ahead of this weekend's crucial meeting of finance ministers from the G20 developed countries, Sants made it clear that he was opposed to any idea of setting a massive European super-financial regulator.

“We would be cautious about creating some form of monolithic supervisory organisation divorced from on-the-ground issues,” he said.

Sants pointed out that this week saw the regulator's first criminal prosecution over insider dealing come to trial and added: “We have several more in the pipeline.”

He also told his audience of City bankers and brokers that they should expect far more intrusive oversight from his organisation after it learned lessons from the massive failures of the recent past and the current financial crisis.

“In the future, we will seek to make judgments on the judgments of senior management and take actions if in our view those actions will lead to risks to our statutory objectives,” said Sants. “This is a fundamental change. It is moving from regulation based only on observable facts to regulation based on judgments about the future.

“This more intrusive' and direct' style we call The Intensive Supervisory Model',” he said. “To see the full picture, it is important to ally this with our more proactive approach to enforcement — our credible deterrence philosophy'.”

Sants added : “Events such as the failure of AIG clearly demonstrate the value of integrated risk assessment delivered through a single authority. There was an operational and managerial failure in our supervisory area which was responsible for large UK institutions but the response to that should be to address the operational failure, not to change the operating philosophy and structure.”

He also called for more involvement in regulation from non-executive directors and investors: “Non-executives will need to commit more time and raise their technical skills to exercise rigorous oversight. These changes will no doubt warrant more support, and indeed compensation, for these individuals. They will also, however, need to be more willing to challenge executives.”

But ultimate responsibility lies with management, he added: “In viewing the recent litany of firm failures in many cases, albeit with hindsight, specific decisions and strategies can be seen to be at the root of those firms' demise.”