Bank capital rules should be overhauled to ensure enough capital is held against potential trading losses and there should be tougher oversight of banks' trading valuation and risk management systems, the UK's Financial Services Authority said on Wednesday.

The FSA's proposals, outlined in a new discussion paper, are a response to the conclusion by regulators around the world that banks and other financial firms didn't adequately account for their trading risks which meant they didn't hold enough capital to survive financial turmoil.