Regulating Models?

It is clear that no one seems to fully understand models apart from their builders. If LTCM with its Nobel Prize Winners can go bust then anyone can. I have to chuckle when everyone consistently forgets that the FSA was never a zero default regulator and also how the insurance industry in the UK is to copy the Banking Regulation system. Regulating capital by making inferences about the quality of risk management and models is actually daft insofar as it should be purely about senior management. Good management in insurance does not necessarily require good models but ability to use the models if they exist and how to cope if they are not reliable (ie worse than not existing)...
The daft thing about Basel II is the assumption that mortgage lending is much better risk than unsecured lending. It is different but it is not obvious how much better!