The Financial Services Authority (FSA) has warned that more incidents of financial crime may come to light in 2008 and that resources could be diverted away from fighting financial crime, thanks to tighter economic conditions.

The FSA today released its Financial Risk Outlook to warn consumers and firms of the inherent risks in a significantly less benign economic environment in 2008

The FSA warned that the existing business models of some financial institutions were under strain as a result of the adverse market conditions.

The report also said that increased financial pressures could lead to financial firms shifting their focus away from the conduct of business requirements towards maintaining and strengthening busines-as-usual processes.

The FSA said that market participants and consumers could lose confidence in financial institutions as well as the authorities ability to safeguard the financial system. In addition they warned that a significant minority of consumers could experience financial problems because of their higher borrowing levels.

The tighter economic conditions, could also lead to more discoveries of financial crime and could also mean that firms divert resources away from tackling financial crime, said the report.

The Financial Risk Outlook focuses on risks arising from the events of the second half of 2007 and on the less benign outlook expected for the next 18 months.

Callum McCarthy, the Chairman of the FSA, said, To be clear, these are not firm predictions about what we think will actually happen but are a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy.

Firms and consumers need to recognise there are both short and long term risks and should think about the implications.

The FSA was criticised last Friday by the Commons Treasury Committee for failing to stress test Northern Rock's business model.