Lord Adair Turner has said one of the major flaws in the regulatory structure which failed to avert the financial crisis in the UK was the FSA was "asked to do too much".
In his final Mansion House speech after four years as FSA chairman, Turner said the regulator combined functions that are "best kept separate", such as prudential and conduct supervision.
An overburdened regulator, he said, plus unsafe rules on global bank liquidity and a "dangerous culture" within major banks, combined to cause the downturn and subsequent recession.
"So, the crisis was not a bolt from the blue - it arose from poor supervision, from bad rules and structures, from dangerous cultures - and the errors were made by regulators, economists, central bankers and public policy makers, as well as bankers' themselves.
"A lot of apparently very clever people got it very wrong, and the ordinary citizen suffered. We have to do better in future".
Turner said the timing of his appointment as FSA chairman in 2008 - within days of the collapse of Lehmans and the rescue of RBS and HBOS - left him feeling as though he had been "appointed captain of the Titanic after we'd hit the iceberg but before we'd actually sunk".
He said regulators were righting the wrongs of the past - with changes in the UK to the regulatory system and in Europe and elsewhere to banks' structures and capital liquidity rules.
There are even signs that banking industry leaders are recognising the need for major cultural change, he added.
Turner said recovery from recession was likely to be protracted, particularly because post-crisis deleveraging is "very, very difficult to manage", but he said it was right to pursue "unconventional" monetary policies such as quantitative easing.
He also said that, though the roots of the crisis lay in one particular subset of financial services - the banks - it was important to point out that other parts of the financial system, including asset managers, had continued to provide high quality services to the world economy.
"It is essential that, as we fix the problems of the banking system, we also celebrate the success of many other City services and firms," he said.
Turner, who is considered to be one of the frontrunners for the Bank of England's governor job, also called for the central bank to look at alternative ways to stimulate economic growth as QE has left the UK in a "liquidity trap".
He indicated the Bank could take a different path should he be the successful applicant as printing more money, on top of the £375bn printed so far, will have "declining marginal impact", reported The Telegraph.
He said "more innovative and unconventional policies" needed to be considered to get economic growth going and warned QE had placed the UK in a "liquidity trap in which replacing private sector holdings of bonds with private sector holdings of money has little impact on behaviour and thus on demand".
The current governor Sir Mervyn King is to step down from the role next year and applications for the job closed last week. Paul Tucker, deputy governor of the Bank of England, is the leading frontrunner to replace King but Lord Turner is believed to have a good chance of the top job too.
Sharon Bowles, Lib Dem MEP, also revealed this week she had applied for the job.
George Osborne will announce the successful candidate at the Autumn Statement on 5 December.