A BLUEPRINT for international financial regulation will be unveiled this week, leading the way for a global crackdown on the shadow banking system and high-risk trading strategies.

Lord Turner, chairman of the Financial Services Authority (FSA), will publish a paper on Wednesday outlining the regulator’s responses to the global financial crisis.

The proposals are expected to form the cornerstone of international efforts to overhaul the global regulatory system, which are close to the top of the agenda for discussion at the G20 summit in London next month.

Finance ministers and central bankers of the G20 countries, meeting yesterday in Sussex, pledged a new approach to financial regulation and signalled an increase in the International Monetary Fund’s resources.

The G20 issued a paper, Restoring Lending: A Framework for Financial Repair and Recovery, which called for “full and transparent disclosure” of the banks’ bad assets and said governments should have “well-defined exit strategies” for their banking rescues. Treasury officials said one reason the government was trying to avoid full nationalisation of Royal Bank of Scotland and Lloyds Banking Group was to make it easier to sell them back into the market.

Turner is expected to call for an overhaul of the relationship between the tripartite authorities of the FSA, the Bank of England and Treasury. He wants more co-ordination between regulators and central banks to spot signs that economies are overheating.

He will launch a clampdown on the shadow-banking system — including the off-balance-sheet funding vehicles set up by banks in tax havens.

Further regulation of hedge funds is expected to come on the agenda, which could ultimately lead to some larger funds being forced to adhere to the same rules as banks. The G20 said hedge funds and their managers should be registered and required to “disclose appropriate information on the risks they pose”.

Banks that offer big bonuses to traders who deal in risky assets could be obliged to hold more capital. Retail banks, which hold savers’ money, could also face restrictions on the investments they make through their treasury operations.

All financial-services companies will be forced to illustrate the extreme circumstances under which they could go bust.

Turner’s proposals will be unveiled alongside a separate FSA report into the pay structures at British banks. New rules on bankers’ pay are likely to be at the centre of the reforms. The FSA has long argued in academic papers that short-term risk-taking was encouraged by the bonus structures at large banks, but it has yet to take any action.

Over the past two months all banks operating in Britain have been ordered to submit a detailed analysis of pay structures throughout their organisations.

Gordon Brown gave a clear hint on the direction of the revolutionary report in a press conference with German chancellor Angela Merkel yesterday, to coincide with the G20 finance ministers’ meeting.

“You are going to see a massive change in the supervisory system.

It’s going to include tax havens and institutions where it didn’t before,” he said.

The G20 gathering, held to prepare the ground for a summit in London on April 2, focused its efforts on two areas – measures to boost the global economy immediately and action to prevent banking crises dragging the world down in future.

In a communique issued at the end of the meeting, the G20 countries talk of maintaining the “sustained effort” needed to boost growth through extra public spending and tax cuts.

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