The call came as part of the committee’s report, The work of the Financial Conduct Authority: the perimeter of regulation, and follows its current series of investigations.
Its report found that financial services consumers often find the perimeter confusing, whether they are individuals or small businesses.
The committee noted that this lack of understanding “may well be preyed upon” with some firms deliberately gaming the perimeter “to undertake regulatory arbitrage”.
As a result, the MPs unanimously recommended that where regulated financial institutions undertake unregulated activity, the regulatory system should ensure that clear and explicit warnings are provided at that point.
This would include the potential consequences of the lack of regulatory cover being clearly explained, with sanctions for firms that failed to do so.
“Care needs to especially be taken where regulated financial institutions are undertaking an activity that is itself unregulated,” the committee said.
“Often the realisation that an activity is unregulated comes only after problems emerge, and the regulator’s lack of power becomes apparent to those affected.”
The Financial Conduct Authority (FCA) has already raised concerns about this area of the financial services market.
In January it sent a Dear CEO letter to all its firms that it was aware of a number of financial promotions giving the impression that all activities are regulated by either the FCA or the Prudential Regulation Authority, when they are not.