We perfectly accept there was a gap in our regime, that has now been filled.

Sir Howard Davies

"We accept that in the past there was a problem about money laundering and a problem about the adequacy of controls and the adequacy of the powers of financial regulators," he said.

"That was something that this government accepted in 1997-98. It therefore included in the Financial Services Act a new set of controls which we now have to bring criminal prosecutions against banks for money laundering offences."

'Serious restrictions'

In October of last year, a maverick French socialist MP, Arnaud Montebourg released a damning report that suggested Britain offered a safe haven for terrorist money while the authorities did virtually nothing about it.

The 400 page report also claimed that the City of London's strict code of confidentiality was allowing money laundering to flourish.

Sir Howard acknowledged that there are "serious restrictions" on what the FSA can and cannot say about the cases it is investigating.

But he was adamant that problems tackling money laundering offences have now been resolved.

"We perfectly accept there was a gap in our regime, that has now been filled," he said.

Crime 'hotspot'?

Sir Howard also denied that London was a hotspot for money launderers following comments from a senior New York fraud investigator that said London was a great place to carry out major fraud.

The stereotypical view of finance workers in the City of London

"If you want to hide a needle then you look for a very big haystack," he said.

"[London] is the largest international centre. We have far more international foreign banks here than anywhere else, including New York."

Sir Howard also went on to defend the FSA against allegations that they failed to alert investors to the potential losses they were going to face during the Equitable Life scandal.

Thousands of policy holders at Equitable Life saw their investments slashed when generous guarantees Equitable offered on certain pension policies saddled it with huge unquantifiable costs.

Guarantee

Sir Howard claimed that in his view, "the practice of offering guaranteed policies without any kind of hedging and indeed without any kind of regulatory reporting" was wrong.

"The policies that have caused the problem for Equitable Life were sold between the mid 1950s and 1988," he said.

"At that time the regulatory regime did not require companies to reserve against the potential cost of those guarantees if interest rates went down."

He maintained that in the present climate, "we certainly require people to reserve for any guaranteed policies that they offer."

You can hear the HARDtalk interview in full at the following times:

BBC News 24 (times shown in GMT)
9 April 0430, repeated 2230

BBC World (times shown in GMT)
9 April 0430, repeated 1130, 1630, 1930, 0030