LONDON, July 20 (Reuters) - Britain should overhaul its

water regulatory system to create one body with the powers to

set investment and ownership demands in a bid to improve

investor confidence and help protect consumers and the

environment, a report said on Monday.

After winning power last year, the Labour government ordered

an examination of the privatised water industry in England and

Wales, which needs huge investments to fix aging infrastructure

and stem record sewage spills into rivers and lakes that have

angered the public.

Former Bank of England deputy governor Jon Cunliffe, who has

led the review, published 88 recommendations in his findings,

saying that the separate financial and environmental regulation

of the sector, which sees Ofwat set bills and monitor companies

financial health, was not working.

"The current regulatory landscape is fragmented and

overlapping and fully joined-up regulation is essential for the

system to meet the demands of the future and ensure that private

water companies act in the public as well as the private

interest," his review said.

Among the recommendations the review said the new

regulator should set "minimum capital" requirements for

investors and it should also be able to block changes in water

ownership if they were not deemed to be in the long-term

interests of the company.

In order to attract investment, the report said the

government should give direction to the regulator to support

stability and predictability - a reference to what returns an

investor could make and perhaps how fines for sewage leaks

should be handled.

($1 = 0.7460 pounds)