The Financial Services Authority (FSA) has told banks the new regulatory system will push them to weed out potentially harmful products and demand they pay particular attention to treating customers fairly.
Bankers were once of the "highest repute" and banking synonymous with confidence and trust, but this has changed thanks, in part, to the financial crisis, the FSA's Martin Wheatley said in a speech to Scottish bankers on Thursday.
Wheatley, managing director of the regulator's consumer and markets business unit, said problems had also been caused by banks' failure to be open and honest with customers.
He said it would be the job of one of the FSA's replacement regulators, the Financial Conduct Authority (FCA), to "get to grips" with these issues and rebuild confidence and trust in the system.
Banking practices must be focused on "good profits", Wheatley (pictured) said, rather than profit "at any cost".
Speaking at the Chartered Institute of Bankers in Scotland, Wheatley said transparency, fair disclosure and fair sales practices were not necessarily sufficient to rebuild confidence when consumers still may not do the "right" thing, especially given economic pressures.
The FCA would be doing more work to understand the behaviours of both consumers and firms, Wheatley said.
But he suggested product regulation remains a core focus of the new regulator.
Regulation under the FCA will be about "following the money" to understand what lies behind firms' profitability, he said. The FCA will look at whether firms have product development and approval processes that can "weed out harmful or inappropriately-marketed products".
Wheatley said the approach will be to spot products where the risks are likely to outweigh the benefits the products will bring.
He said the FCA would build on the work the FSA has already done on product regulation, adding that intervention could mean a product ban, but that "there are other things we can do behind the scenes with firms".
However, he said the FCA will continue to monitor firms' sales and distribution processes
"In all of this, we accept that firms need to be able to generate acceptable returns for shareholders, and have to be financially robust," Wheatley said
"But this is about ‘good profits' rather than profit at any cost - either to firms' own stability or their customers' best interests."
Consultation closing 15 September
Across all public sector schemes
Proceeds being returned to investors