The Treasury Select Committee (TSC) has recommended splitting of the UK’s Financial Conduct Authority (FCA) to create a separate enforcement body.
The committee made the recommendation in a review of the regulatory response into the collapse of banking group HBOS.
The committee criticised the role of Financial Services Authority (FSA) – predecessor of FCA – for failing before and after the HBOS crisis.
Treasury select committee chair Andrew Tyrie said: "The regulators failed, both before and after the HBOS crisis. Seven years after the bank's collapse, we now know just how badly – and not because the regulators showed a spirit to learn the lessons of the past.
“It took persistent pressure from the Treasury Committee to ensure these failures weren’t swept under the carpet.”
The committee argued that the existing system where both supervision and enforcement are part of the same regulator is "outdated and can be construed as unfair".
“By moving enforcement away from supervision, it can focus independently on undertaking its key functions: interrogating evidence and assessing whether a regulatory breach has been committed,” the committee said.
Tyrie added that a separate body would offer the regulators greater clarity over their objectives.
“An FCA with fewer objectives, and a single separate body responsible for enforcement, would probably result in better accountability and better outcomes,” the committee added.