Regulators failed to manage the risks that financial institutions were taking prior to the financial crisis, the International Monetary Fund says in a new report.

Their inability to stem systemic risk was a contributing factor in the crisis that crippled the financial system, the organization argues.

The costs of responding to the crisis, the IMF writes, "have been imposed partly as a result of systemic weaknesses in the regulatory architecture and on the failure of supervisors to rein in excessive private-sector risk-taking."

The fund recommends that financial regulations be strengthened significantly to head off another crisis; it also says governments need to coordinate their efforts to ensure that globally significant financial firms are managed adequately.

Yet it acknowledges that the private sector also has a role to play in mitigating risk. Market discipline can influence the behavior of financial firms, the IMF says, arguing that "it is not up to the regulators to 'build' the financial system, but to influence its direction by providing appropriate rules and incentives."

If regulators follow the IMF's advice, derivatives regulation may only increase in the future.