The House of Lords should scrap the Financial Services Bill in its current format, regulatory consultants Ignacity says.
The company says the Bill is unconstitutional and gives sweeping powers to the FSA.
In response, it has launched a campaign to prevent the upper house from passing the Bill as it stands, ahead of its second reading next week.
The Financial Services Bill was introduced to the UK parliament to provide a stronger regulatory framework in the wake of the financial crisis and provide greater rights to consumers.
But Ignacity says the Bill in its present format gives far too much power to the FSA, enabling the regulator to change the entire financial sector without recourse to Parliament and doing away with long-established traditions of civil law.
"The FSA is to be given powers to lay down remuneration policies for every firm - from the largest bank to the smallest insurance broker - without Parliament having the least say," says the consultancy.
"The exercise of powers will be almost entirely in the hands of the FSA-the FSA will have discretion as to when to act and how to act," it adds."
The firm also voices concern the FSA is itself without scrutiny, giving it a free-hand to act.
Whilst Ignacity acknowledges reform of some sectors of the industry is required, it strongly objects to what it sees as a one-size-fits-all approach.
"The proposed powers are all embracing - while it is possible to argue a case for intrusive regulation of large institutions that enjoy an implicit taxpayer guarantee, there is no case at all for similar intrusion into smaller entities that cannot possibly cause a national or international crisis."
The consultancy firm adds the Bill's proposals, designed to reform the financial system, could actually damage it.
"It is unlikely that they will do very much to benefit the country as a whole - and if they simultaneously shrink the financial services sector and reduce the availability of finance to the rest of the industrial and commercial sector, they will do a good deal of mischief."
The firm is therefore looking to persuade the Lords to re-examine the bill.
"The House of Lords will do everyone a service if it scrutinises this measure closely, and amends it where desirable, even if as a result the Bill is lost on dissolution. We propose to provide effective and timely briefing to members of the House of Lords to encourage them to give this measure the full examination it cries out for.
Ignacity also says the tripartite system of financial regulation - shared between the Treasury, FSA and Bank of England - creates a situation where "responsibility is fatally divided."
Last year, the Conservative party unveiled plans to scrap the FSA and give more powers to the Bank of England to regulate the City.
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