Big changes in financial rules coming, EU says

By Huw Jones

BRUSSELS, Nov 20 (Reuters) - Big changes in financial regulation are in the works after "mind-boggling incompetence" at banks has made it impossible to quantify the credit crunch fallout, a top EU official said on Thursday.

Some $1 trillion of losses have been disclosed globally by banks related to securitised products that turned toxic amid defaults in U.S. home loans since mid-2007, triggering a global credit crunch that helped tip European economies into recession.

"Fifteen months into the crisis and we still don't have a clear picture of where these products are and what the losses are," said David Wright, deputy director general of the European Commission's internal-market unit, told a mortgage conference.

"There still appear to be more writedowns to come. Let's assume that is correct. They have to be disclosed to the market as fast as possible and as long as we have this uncertainty, normal business will be impeded," Wright said.

Some of the toxic assets have found their way into insurers, pension and investment funds.

European Union Internal Market Commissioner Charlie McCreevy has the sole right to propose EU-wide financial regulation, and tougher rules are coming to improve transparency.

"It's still quite early but things are not going to stay the way they are today for very much longer," Wright said.

Last week's G20 financial crisis summit in Washington was a signal that regulatory change would be global.

"We will have to see by how much. We don't know the new policies of the incoming U.S administration, but nobody thinks this is just another perennial declaration that is forgotten once it's written," Wright said.

"There will be enormous change in the United States. The regulatory system will be modified and no doubt the supervisory system as well," he added.

"We want to be a model for the rest of the world and be able to export our regulatory approach and supervisory approach and ways of working," Wright said.

He said many initiatives were in the pipeline:

-- Next year's priority would be a profound assessment of whether the EU's financial rules were "fit for purpose" and what to do about lightly regulated sectors such as credit derivatives;

-- Efforts by the European securitisation industry to improve transparency have not gone far enough and investors need to do due diligence on what they buy;

-- McCreevy "is going to win the argument" to force EU banks to retain a share of the securitised products they sell, despite "enormous opposition from the market";