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The UK risks failing to mend banking’s broken ethical standards and structure, according to a review of the government’s reform plans by an influential cross-party commission.

Andrew Tyrie, the Conservative MP who chairs the Parliamentary Commission on Banking Standards, said the Libor rate-rigging scandal – which this week saw the Swiss bank UBS pay $1.5bn in fines to regulators in the US, UK and Switzerland – was just the latest proof that the banking culture needed to be reined in.

“Investigations into Libor have exposed a culture of culpable greed far removed from the interests of bank customers, corroding trust in the whole financial sector,” says the commission’s report, published on Friday.

In a 146-page assessment of the government’s planned Vickers reforms, the 10-member panel endorses the central idea that “universal” banks should be made to erect a protective “ringfence” around their high-street banking activities.

However, it urges George Osborne, the chancellor, to go much further.

“The proposals . . . fall well short of what is required,” the report says. “Over time, the ringfence will be tested and challenged by the banks . . . For the ringfence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to.”

The report argues for an “electrified” ringfence, which would see regulators given the power to force the break-up of a bank, or of the whole sector, if the Vickers plan proved ineffective.

The report also raises the prospect of a ban on proprietary trading – whereby banks trade securities for their own account – in line with the incoming Volcker rule in the US.

But in one significant concession, the commission has agreed banks should be allowed to sell simple derivatives, such as currency hedges, to small businesses from within the ringfenced operation.

The report makes stark reading for a banking industry that has completely lost the trust of senior parliamentarians, a sentiment summed up by Mr Tyrie’s comment on the Libor scandal: “The latest revelations of collusion, corruption and market­ rigging beggar belief.”

The MPs and peers on the panel make it clear that they fear the banks will try to wriggle under, over or around the banking ringfence, unless the barrier is “electrified” with a series of trip wires set to sound the alarm to regulators.

Mr Tyrie urged the banks to respect the rules. “We are saying to the banks: help us make the ringfence work. If not, the regulator may pull you apart.”

He told the BBC on Friday that reform needed to be focused on the long-term.

“We’re discussing this in a climate of relative crisis but one day, it’s difficult to imagine, in 10 or 20 years’ time, there will be a clear blue sky with no clouds on the banks’ horizon, and people will get complacent.

“It’s at that point it’s crucial you have a set of rules and a system in place that can keep banks away from testing the ringfence.’’

The Treasury said it would study the conclusions carefully and was at pains not to reject out of hand any of the central proposals.

Copyright The Financial Times Limited 2017. All rights reserved.

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