Britain's financial regulator has been labelled 'outdated and unfair' by a scathing parliamentary report, which has also called for a new watchdog to be introduced in the industry.

The Financial Conduct Authority (FCA) is responsible for both supervision and prosecution within the financial industry, but the House of Commons Treasury Committee argued the functions should be separated.

In its current form, the system is "outdated and can be construed as unfair", the committee added.

The report put the regulator's role during the HBOS bank saga in 2008 under further scrutiny, sparing no criticism to the watchdog, which was accused of failing before and after the crisis. Seven years ago, HBOS required a £20.5bn cash injection from British taxpayers to prevent it from going bust after becoming a part of Lloyds Banking Group.

In its report, the committee criticises the Financial Services Authority (FSA), the FCA's predecessor, for not being "up to the job" and for failing to protect consumers.

"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," said Andrew Tyrie, chairman of the committee.

"The plain fact is that the FSA did not succeed in protecting consumers from spectacular regulatory failures."

The report also expressed concerns that the failings of 2008 continued to pose a major challenge for its successor bodies, particularly the FCA. As a result, the committee has urged the Treasury to consider the idea of creating an enforcement body completely separated from Britain's financial watchdog.

"A separate statutory body would bolster the perception of the enforcement function's independence," the report stated.

A similar proposal was first put forward by the Parliamentary Commission on Banking Standards, only to be dismissed in 2014 when the Treasury claimed there were "clear advantages to locating the supervisory and enforcement functions within the same organisation".

Meanwhile, the FCA dismissed calls for a separate regulator, stressing stripping its enforcement powers could make it less effective.

"We have a range of tools at its disposal of which enforcement is an essential one," the regulator said.

"We believe that if this regulatory tool is separated from the FCA it would potentially lessen our ability to be an effective regulator and impact our ability to protect consumers and ensure the integrity of the UK financial system."