The Approved Persons Regime (APR) has been described as not fit for purpose in a Treasury Committee report.
The APR is currently used across the financial services industry to help ensure senior management are suitable to their posts, including in the insurance industry.
The system is due to be abolished in the banking industry, following the problems at the co-op bank in part blamed on its former chair Paul Flowers.
The Project Verde report examines the circumstances surrounding the Co-op Bank's failed takeover of Lloyds TSB branches which led to the TSB being re-established as a bank. Part of the report examines the regulatory scheme in place at the time.
The APR is described as a "narrow box-ticking exercise" which is quite inappropriate to the financial services industry.
The report said: "The Approved Persons Regime remains in place for the majority of financial services firms, despite its manifest failings. This is a mistake, and one which must be addressed soon by the Government and regulators."
