London faces huge damage as a financial centre if G20 world leaders decide at their meeting on Thursday to create an overly onerous world regulator, the Association of British Insurers warned today.

"The future of the UK's financial services rests on a knife-edge," warned director general Stephen Haddrill. "London can lead the way out of the crisis in financial services, but it also has most to lose."

The ABI, whose members have more than £1 trillion invested in shares and bonds, and accounts for 15% of the stock market, urged the G20 to avoid protectionism, which could drive business to countries with more lax regulatory regimes.

Haddrill said he accepted the need for regulatory reform, but argued that since 2003 the Financial Services Authority and insurance industry had worked well together.

"London needs to make its voice heard so unnecessary costs for industry and consumers are not hardwired into the system for a generation," he said.

However, he favours a pan-European supervisor of supervisors to iron out cross-border disputes, and says this should also be based in the capital.

Meanwhile, a survey of City professionals says banks face more redundancies and will see more key workers move overseas if there is a Europewide regulator. The City's competitiveness would be damaged by any such move, according to 52% of UK bankers questioned by recruitment network eFinancialCareers. Some 55% of front-office bankers said they would move to a country with a more lenient regime if excessive regulation resulted from the G20 meeting.

But two-thirds of the bankers said a more global system of regulation was desirable but only 18% of those who have been in the industry for more than 10 years are convinced a global regulator would actually work.

The survey also found that more than a third of the bankers thought up to 50% of European and American banks will have been taken into public ownership by 2012.