CITY watchdog the Financial Conduct Authority (FCA) has come under fire for not taking further action against Royal Bank of Scotland (RBS) after an investigation into its treatment of business customers referred to its controversial Global Restructuring Group (GRG).

MPs on the All-Party Parliamentary Group (APPG) for Fair Business Banking have written to FCA chief executive Andrew Bailey calling for a public inquiry into banking scandals.

APPG co-chair Kevin Hollinrake said in the letter: “The APPG is naturally disappointed and extremely concerned by the announcement that no further action will be taken by the FCA with regard to the investigation into RBS’ treatment of business customers.”

It came after the regulator said last month that it was taking no enforcement action against RBS or GRG staff after the bank was accused by small businesses of stripping their assets in a “dash for cash” between 2008 and 2013.

Hollinrake said the current regulatory framework was ill-equipped to deal with scandals seen over the past years, and called for a public inquiry.

MPs have already called for the FCA to be given new powers to regulate business loans after the watchdog was unable to punish RBS.

In the letter, Hollinrake pointed out that the FCA’s statements in July said its “powers to discipline for misconduct do not apply”; that it could find “no evidence of dishonesty, lack of integrity”; or anyone acting “recklessly or with a dodgy ethical compass” and did not “make findings about misconduct”.

“By its own rules, the message the FCA’s decision sends to the victims of RBS GRG is that it believes senior managers at GRG acted honestly and with integrity as well as demonstrating competence and capability in their conduct,” he wrote.

“We fail to understand how a senior manager is acting with integrity when prioritising profit for the bank over the interests of their customers.

“The FCA has promised a ‘fuller account’ of its findings. This is not acceptable and would again contravene its own Final Requirements Notice, which not only has to consider the ‘root causes’ and ‘whether it was sanctioned by management’ but also has to be drafted in a way that can be published.

“We need a comprehensive report… that deals with all the questions as set out in the notice”, that would allow the public, press and parliamentarians can determine whether the FCA could and should have taken action against senior management”.

Hollinrake asked the FCA to release all of its findings thus far.

RBS chairman, Howard Davies, said: “The board continues to focus on putting things right for customers through our complaints process and ensuring that past mistakes cannot be repeated.”

The FCA said: “We have received the letter and will respond.”