Britain's top financial regulator has said that Europe needs an overarching forum for supervisors from all industry sectors to examine risks posed to the financial system.

Financial Services Authority (FSA) chairman Mr Howard Davies said there was need for a European version of the international Financial Stability Forum (FSF) set up by the Group of Seven (G7) in 1999.

"This gap will need to be plugged in some way in the future," said Mr Davies, who warned that markets were going through "a worrying period" and regulators had to be very vigilant.

The G7 created the stability forum after the Asian and Russian financial crises, to bring together central banks and sectoral regulators to tackle issues such as growth in unregulated hedge funds.

European Union finance ministers are due to adopt changes to the bloc's regulatory system at their next meeting in December.

The proposals, which have already won broad support, would create new committees of insurance and banking regulators in an effort to speed up adoption of the rules deemed necessary for the bloc's single market in financial services.

They would extend a model already applied to the securities industry. But a joint British-German call earlier this year for a body like the stability forum has been watered down.

Mr Davies underlined concerns among regulators about the health of some financial firms following two years of hefty stock market losses but declined to be specific.

"It's a very worrying period in financial markets," Mr Davies said, adding banks and life insurers in some countries looked vulnerable. "Extreme vigilance is required by financial regulators," he said, making clear his concerns were not limited to Britain.

Banking systems were under strain in a number of countries, Mr Davies said, without giving examples apart from Japan. - (Reuters)