Britain's financial regulator told companies yesterday to check whether their business models are sufficently robust to withstand the economic downturn.

Hector Sants, chief executive of the Financial Services Authority (FSA), said that the country was entering the third act of the global financial crisis, in which the difficulties moved from banks and stock markets to the real economy and consumers. The next 12 months will be very difficult, he said.

Speaking at the FSA's annual meeting, Mr Sants said: “Firms will have to consider their own business models and whether they are sustainable in the new environment that's emerging.” He said that the regulator had been more “directive, prescriptive and braver” when working with financial companies through the credit crisis.

The FSA is believed to have told several banks to bolster their capital ratios, leading to British banks raising more than £20 billion in the past four months through rights issues and strategic investors. The regulator is also thought to have strongly encouraged Alliance & Leicester to accept last week's £1.3 billion takeover approach from Santander, the Spanish bank.

Mr Sants admitted that some banks felt that the FSA's supervision during the liquidity crunch was overly intrusive and directive: He said: “I believe the circumstances warranted this approach.”

Mr Sants described as brave the FSA's new rules that force investors to reveal their short positions in companies undertaking rights issues. Short-sellers had been blamed for spreading rumours in the market, creating huge share price rises and falls that undermined bank capital raisings.

HBOS's £4 billion rights issue had been threatened by market instability but was finalised successfully earlier this week. Mr Sants said: “I believe the action was wholly justified and the subsequent market developments demonstrate that.”

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