It mandates that financial companies have to ensure they have enough capital to tide over an 8 per cent fall in GDP by 2014.
Under the new regime, new products by banks, insurers and investment corporations will undergo scrutiny while they are in the design and development stage. This is in addition to the existing review of the marketing and distribution of financial products.
FSA chairman Lord Turner unveiled the annual Financial Risk Outlook report for 2010. He said the FSA will force banks to use the "lion's share" of earnings to shore up capital before paying dividends and bonuses.
FSA chief executive, Hector Sants, is going to announce more details about how products sold to consumers would be regulated under the new approach.
The regulator said high incidence of mis-selling scandals in the past 15 years and the treatment of borrowers in arrears remained areas of concern.
Apart from the stricter testing regime, the FSA also plans new capital rules from 2011 under which banks have to show they still have a core tier one capital ratio of 4pc.
