"The APPG is naturally disappointed and extremely concerned by the announcement that no further action will be taken by the FCA with regard to the investigation into RBS' treatment of business customers," Kevin Hollinrake, co-chair of the All Party Parliamentary Group (APPG) for Fair Business Banking, said in a letter to FCA chief executive Andrew Bailey, dated Aug. 9.

Hollinrake said the current regulatory framework was ill-equipped to deal with "scandals" seen over the past years, and called for a public inquiry over banking scandals.

The letter was made public on Sunday.

The FCA said in July that it was taking no enforcement action against RBS or staff in the bank's Global Restructuring Group (GRG) unit, after the bank had been accused by small firms of stripping their assets between 2008 and 2013.

MPs have already called for the FCA to get new powers to regulate business loans after it was unable to punish RBS.

Hollinrake in his letter called for a comprehensive report that deals with all the questions surrounding the FCA's decision not to investigate, and asked it to release all of its findings thus far.

The FCA's Bailey had previously said the watchdog's powers to take such action were very limited given that commercial lending is largely unregulated.

"Bearing in mind that the FCA states that it has such limited powers with regard to enforcement, we have deep concerns regarding other investigations currently underway, in particular Lloyds and HBOS Reading," Hollinrake added.

The group had already expressed its concerns about Lloyds Banking Group and its HBOS Reading division in a letter last month.

The FCA did not immediately respond to a request for comment on Sunday. RBS did not have an immediate comment on the matter.

(Reporting by Shubham Kalia in Bengaluru and Emma Rumney in London; Editing by Susan Fenton)