The report goes on to state that the FCA may have been “captured”, meaning it is too aligned with banks and other financial organisations to act against them.
It argues there are “unmanaged conflicts of interest” within the FCA because of its role both to protect consumers and promote economic growth.
It suggested the watchdog should be stripped back to a regulator purely focused on consumer wellbeing – leaving the government to focus on economic growth.
It also suggested that the FCA’s leadership should be replaced “if necessary”, calling its current leaders “opaque and unaccountable”.
Mr Rathi said the issue of growth versus consumer protection “requires a debate”, but that Chancellor Rachel Reeves was pushing it to pursue growth.
He accepted that promoting growth can mean increasing risks for consumers, pointing to changes it made to allow more companies to list in the UK, such as on the London Stock Exchange.
“We were very transparent all the way through that discussion over the previous 18 months that this would bring more risk into the system, [but] it was judged that this was necessary,” he said.
“That does mean that over time a few more things will go wrong, but the risk appetite in the economy needed to adjust to support the growth that the economy needs.”
On the issue of accountability, Mr Rathi said the FCA appears before Parliament and select committees and publishes more data than “any other regulator in the world”.
A Treasury spokesperson told the BBC: “Many of the issues explored in the report have been extensively reviewed, and as a result the FCA has made a number of changes.”