Sweeping changes need to be made to the rules regarding the UK's shadow banking system, it has been said.
Adair Turner, chairman of the Financial Services Authority (FSA), believes such action is essential because regulatory bodies are unlikely to fully understand and appreciate the complexity of this market under its current terms.
Many officials believe the lack of transparency in this $60 trillion arena was a major contributing factor to the global economic downturn and, later this year, the Financial Stability Board will publish its proposed new rules.
However, Mr Turner told the Cass Business School it is vital to make sure these reforms are "sufficiently radical" in order to resolve an issue once and for all that has been going on for more than a decade.
"Any system this complex will defy complete understanding and any belief that we can precisely calibrate our response to it will therefore be a delusion," he added.
By Claire Archer