Banks could soon find their retail operations coming under tighter scrutiny from the City watchdog under proposals that would severely curtail the industry’s freedom to regulate itself.

The Financial Services Authority on Tuesday proposed that it should extend its remit to oversee areas of banking conduct including current accounts, personal loans and overdrafts, savings, card services and cash machines. Currently those areas are covered by sections of the Banking Code, which is enforced by an industry-led body, the Banking Code Standards Board, into which the regulator has some input.