Kevin Hollinrake MP, the co-chairman of the All Party Parliamentary Group for Fair Business Banking (APPG), said a formal inquiry was the only way to restore confidence in the banking system.
In a letter to Andrew Bailey, the chief executive of the Financial Conduct Authority, Mr Hollinrake said it was the firm view of the APPG that the regulatory system was not equipped to deal with “the scandals that we have seen over the past years”.
The letter said: “Our entire economic model depends on fairness, transparency, accountability and justice not only being done, but being seen to be done. As things stand that is not the case.”
Mr Hollinrake said the APPG was disappointed and extremely concerned by the announcement that no further action will be taken by the FCA with regard to the investigation into Royal Bank of Scotland’s treatment of small business customers.
Last month, the FCA said it had concluded that its powers to discipline anyone for misconduct do not apply and added that action against senior management in the bank’s global restructuring group (GRG) for lack of fitness and propriety “would not have reasonable prospects of success”.
The financial watchdog said it had taken independent, external legal advice on its decisions, which found that GRG’s activities were not within its remit and confirmed “the FCA’s conclusions are correct and reasonable”.
But Mr Bailey said: “The fact that we can’t take action in no way condones the behaviour of RBS.”
In his letter, Mr Hollinrake said there had yet to be a full scale public inquiry into allegations that firms were being mistreated by the big banks.
He said the “ecosystem” in which these events occurred is extremely complex “and reach into not only the behaviour and standards in so-called ‘turnaround units’, but also the behaviour and regulation of accountants, LPA receivers, surveyors and insolvency practitioners.
“In order to get to grips with this issue, we are calling for a full public inquiry that can cut across institutional and sectoral lines and investigate the complex, and often incestuous relationships between financial institutions, their numerous advisers and related professions, and the complex regulatory framework that is supposed to uphold the highest standards.”
In his letter to Mr Bailey, Mr Hollinrake said the inquiry would aim to produce “amongst other things and relevant to the FCA”, a full set of industry standards for treatment of businesses in turnaround units in financial institutions.
The inquiry could also help to hold people and organisations to account.
The letter concluded “In light of the above would you support our calls for a full statutory inquiry into the business banking sector?”
A Financial Conduct Authority spokesman said: “We have received the letter and will respond.”
UK Finance, a trade association for the UK banking and financial services sector, has called for an extension of the Financial Ombudsman Service to ensure disputes between banks and SMEs (small and medium-sized enterprises) can be resolved quickly and fairly where courts are not the most appropriate route.
The UK Finance spokesman added: “We look forward to Simon Walker CBE’s independent recommendations on what further the industry can do to offer SMEs access to redress.”
Howard Davies, the RBS chairman, said he welcomed the FCA’s confirmation that it had concluded its investigation into the bank.
He added: “We await the publication of the FCA’s report and will reflect carefully on its findings to learn any further lessons from what was a hugely challenging time for the bank, its customers and the wider economy.
“The board continues to focus on putting things right for customers through our complaints process and ensuring that past mistakes cannot be repeated.”