Regulation could not have stopped SocGen case: EU

By Huw Jones

BRUSSELS (Reuters) - No legislative framework could have prevented the alleged fraud that caused huge losses at French bank Societe Generale (SocGen), the European Union's top financial regulator said on Tuesday.

"No regulation in the world could have foreseen what happened last week in France," EU Internal Market Commissioner Charlie McCreevy told reporters.

On January 24, France's second-largest listed bank said it had uncovered massive unauthorized stock trading by an employee that led to 4.9 billion euros ($7.2 billion) of losses at the 144-year-old bank.

Jerome Kerviel, a 31-year old trader, was freed pending further investigations on Monday after prosecutors failed to persuade judges to proceed with a full-scale fraud probe.

The events in Paris, coupled with six months of turmoil in the credit markets, have put pressure on legislators to act.

McCreevy likened the market crisis, which began with defaults in the U.S. home loans market that hit the headlines in August, to the bursting of the Internet bubble, which forced a painful learning process.

Many of the U.S. mortgage debts had been monetized into complex structured products, a process known as securitization, and sold on.

"The same will happen for securitization. There will be more transparency, more data and statistics," McCreevy earlier told a conference on financial markets.

Risk will be more effectively priced and managed, and there will no longer be dependency on the rankings that credit rating agencies give to complex structured products, he added.

His comments came as leaders from the EU's four largest countries met in Britain to discuss what steps could be taken to improve market supervision.

"One thing that is absolutely clear to me is we must not be afraid to question the adequacy of existing legislation and, if necessary, change it," McCreevy said.

But he warned against over-hasty governance.

Conference speakers said, without a clear picture of the markets, it would be difficult to decide on a course of action.

Giovanni Sabatini, a senior official in Italy's ministry of economy and finance, said there needed to be greater cooperation between regulators within and across Europe to spot and resolve problems in the market.

"This would allow supervisors to have a better understanding at the aggregate level of what's happening in the market and to have a global picture," Sabatini said.