Banks involved in securitization and structured finance need better risk control and won't be allowed to engage in some of the forms of regulatory arbitrage that took place in the run-up to and during the financial crisis, an official at the U.K.'s Financial Services Authority said Monday.

"Much of what happened [in the financial crisis] might never have happened had there been proper and effective risk management and product control at investment banks," Colin Lawrence, director of the FSA's prudential risk division, told a conference in London.

He also said banks had exploited the ability to hold structured finance assets in their trading book, which was cheaper from a capital perspective, or in their banking book, where there was less disclosure of any mark-to-market losses.

"We need an even playing field between the banking book and the trading book," Lawrence said. "There should not be an arbitrage between the two. This sort of arbitrage has to go away."

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