The new system of financial regulation must help consumers by promoting competition and better communication so it does not repeat the "shortcomings" of the Financial Services Authority (FSA), a committee of MPs said on Friday.
The treasury committee said the FSA was "dominated by a box-ticking culture" and had been unsuccessful in protecting people from "spectacular" regulatory failures such as the mis-selling of payment protection insurance (PPI).
It said the government must put competition "at the heart of the new regulatory framework", ahead of the drafting and publication of the Financial Services Bill this year.
Treasury Committee chairman Andrew Tyrie said: "The plain fact is that the FSA did not succeed in protecting consumers from spectacular regulatory failures.
"The mis-selling of PPI and endowment mortgages are just two examples.
"The FSA is not only expensive, for which the consumer always pays, but many have told us that it has also become bureaucratic and dominated by a box-ticking culture. The creation of the Financial Conduct Authority (FCA) is an opportunity to create something much better."
The report focused on the FCA, a business regulator which is to form part of the new system.
It said the FCA must have more reliable estimates of its own cost-effectiveness and be more accountable to Parliament, as well as communicating better with the financial services industry.
Tyrie said: "Too often we've heard that the FSA is aloof and unapproachable and that, in any case, firms are nervous about approaching them - we must break with that culture.
"Encouraging a greater level of engagement between firms and the regulator is in the consumer interest."
The FSA, a "super regulator" set up in 1997 to supersede various bodies, recently said that more than £1 billion was paid out in the first 10 months of 2011 to customers complaining about PPI.
Consumers took the insurance out to help repay their loans if they fell ill for a long period or became unemployed, but a widespread mis-selling scandal emerged.
The Financial Ombudsman Service is expecting to have to clear up a record number of PPI cases this year and has said it is "disappointing" that a significant number of consumers are still waiting for businesses to tackle their complaints.
It announced an inquiry into the FCA in September 2011 to ensure the body's objectives will be "clear and appropriate".
Consumer Focus welcomed the report and said it was "vital" that past mistakes were learned from.
Sarah Brooks, director of financial services at Consumer Focus, said: "We agree that the Financial Services Bill needs to have stronger provisions to protect consumers.
"The right balance between the demands of industry and the needs of consumers has not yet been struck. This is a once-in-a- generation opportunity to reform our financial regulation and it is vital we get it right and learn from mistakes of the past such as the mortgage endowment and PPI scandals.
"In recent years the FSA has done a better job in protecting consumers and has been more willing to root out poor practice and products.
"It is important that the FCA takes further steps forward as consumers must be able to rely on an effective watchdog that is ready and willing to fight their corner."