(Adds de Larosiere)
By Huw Jones
LONDON, Oct 14 (Reuters) - A global body with legal powers may eventually be needed to enforce the world's new financial rules, Britain's Financial Services Authority (FSA) said on Wednesday.
But the suggestion made by the FSA's newly appointed director of international affairs, Verena Ross, met with scepticism from Jacques de Larosiere, the architect of a planned revamp of EU financial supervision, who said there was no political appetite for such a new body.
Ross said the Financial Stability Board (FSB) was key to ensuring all gaps in regulation between securities, insurance and banking sectors were plugged.
Formerly known as the Financial Stability Forum, the FSB was expanded in April to include central bankers and finance ministry and regulatory officials from all Group of 20 (G20) countries.
The G20 has asked the FSB, chaired by Bank of Italy Governor Mario Draghi, to coordinate global efforts to introduce new financial rules in light of the sector's worst crisis in 70 years.
"I would advocate to make sure the FSB have a strong secretariat to support their work," Ross told a City and Financial Conference.
"The role of the FSB is crucial. We will need to make sure it is able to play its role forcefully... Success depends on real progress over the next six to 12 months," she said.
But the board has no legal teeth and there are "real questions" about whether the world can continue with such informal arrangements in the longer term, Ross said.
There may be a case for exploring the need for a more formal global regulatory framework, such as a treaty setting up a body with legal powers of enforcement like the World Trade Organisation, Ross added.
"Any move in that long-term direction would have the FSB very firmly at the centre of that global regulatory architecture," Ross said.
Regulators need to get better at monitoring the enforcement of the new rules and banks have a role in this, she said.
But Larosiere, who is behind the European Union's planned overhaul of financial supervision, said only the International Monetary Fund, a body he used to head, would have the power to check on a country's compliance with financial rules.
"The Fund has power to do it. Maybe it has to beef up its staff to do it, but it has the moral authority to have these examinations and to publish their findings," de Larosiere said.
There was no political support for a new treaty to set up a WTO-style body for financial rules, he added.
COST OF EXTRA CAPITAL
Banks have urged a coordinated global approach to regulation to stop some countries having an unfair advantage, especially in tougher bank and liquidity rules due to take effect by the end of 2012.
Angela Knight, chief executive of the British Bankers' Association, said it was clear the minimum 8 percent of capital banks must hold under the global Basel II accord would rise.
"The crisis has demonstrated that the Basel international capital rules were wrong. They neither judged correctly the amount of capital that was needed to be in the system nor the amount that banks needed to hold," Knight said.
Basel is being toughened up to include a leverage ratio or cap, minimum liquidity levels, capital charges on trading books and improvements in the quality of capital that must be held.
"Capital, that is the big cost. That will have the greatest consequence on how the industry will be able to perform its business," Knight said.
Banks in Britain had already doubled their capital requirements from the 8 percent Basel minimum, she added.
A proper assessment was therefore needed of the impact of tougher capital rules on lending and the economy as well as the timing of the new rules, Knight said.
De Larosiere said new capital charges needed costing because if overdone they could hamper the financial sector's ability to lend.
"We have to think much more than twice before engaging in new regulations," he said.
FSA Chairman Adair Turner has called some banking services "socially useless", but Knight warned against using "buzzwords and catchphrases" as activities such as securitisation were being maligned even though they provided finance raising.
The securitisation market had just started to reopen after freezing during the credit crunch and must be allowed to continue reviving, she said.
Banks are also concerned about global plans for a cap on leverage, saying it should only be a backstop and not interfere with capital requirement rules for "normal business as usual".
Katharine Seal, a director at the London Investment Banking Association, said: "It's an area where an ability to be flexible is absolutely paramount."
Knight expects the EU to beef up consumer protection, such as direct product regulation, which UK lawmakers may support.
"There is a case for looking at that issue," said John McFall, chairman of Britain's parliamentary treasury committee.
(Reporting by Huw Jones; Editing by Victoria Main)