CONFIDENCE in financial institutions and markets must be re-established, says the Guernsey Financial Services Commission director-general.

Peter Neville (pictured) said it was impossible to predict the effects of the credit crunch on the island. ‘What was at first expected to be a swift correction within the international financial system has changed in nature and broadened in scope,’ he said.

‘The authorities now face the challenge of preventing the effects of the credit squeeze spreading and infecting the wider economy. ‘What is certain is that the international financial environment has changed and that firms are facing even greater challenges,’ he said.

Mr Neville said key challenges had been recognised as a result of recent events, which included the need for effective prudential risk management, improving customer due diligence practices, addressing the weakness in the originate-to-distribute business model, improving the role of credit-rating agencies and reviewing the role and effectiveness of customer compensation schemes.