AIG London unit not regulated by FSA

The London-based AIG subsidiary blamed for almost bankrupting the US bond insurance giant was not regulated by Britain's Financial Services Authority.

AIG, now 80 per cent owned by the US government following a $160bn (£115bn) bailout, has admitted that toxic assets bought by its London office caused its problems. While questioning claims that the UK operation lost $500bn, AIG said: "This small unit engaged in trades that nearly brought down the company and its still-sound insurance business."

The Mayfair-based AIG Financial Products business is registered in Delaware and avoided regulation by the UK watchdog. The company's Connecticut parent is regulated by the US Office of Thrift Supervision, a small watchdog that monitors the equivalent of building societies. But that allowed AIG Financial Products to gain regulatory approval from France's Commission Bancaire for a Paris-based banking subsidiary, Banque AIG.

That bank was then able to open a London branch under a system that allows companies approved by one EU regulator to open in another member country.