The Financial Conduct Authority has been urged to review the process by which it chooses who will lead independent reviews of its regulatory conduct.
The regulator's own watchdog, the Complaints Commissioner, has recommended it look again at how it appoints independent reviewers in a bid to build public trust in the process.
But the FCA has stood its ground on the matter, instead insisting its appointment process for independent reviewers was "appropriate".
The recommendation was made by the Commissioner as it ruled in favour of the FCA against complaints relating to its regulatory role in the collapse of the Connaught Income Fund Series 1.
Last year barrister Raj Parker was commissioned to lead a long-awaited investigation into the FCA's handling of the fund and that of its predecessor the Financial Services Authority - but the review is currently facing delays as a result of the coronavirus pandemic.
A complaint escalated to the Complaints Commissioner claimed the FCA had attempted to restrict the full range of options for a review of any regulatory failure linked to the collapsed fund.
The complainant also claimed the FCA had failed to fully engage with stakeholders who lost money in the collapse, including himself.
Whilst commissioner Antony Townsend did not uphold the complaint and insisted there was no good reason to suspend or alter the current independent review, he did recommend the FCA look again at its method of setting up a review.
This included a suggestion the regulator review the process by which it identifies and appoints independent reviewers to build public trust.
Mr Townsend said: "The FCA may wish to consider whether this approach, via known contacts, online searches and internal discussion with heavy reliance upon the chair is the best way to command trust in the process and achieve the degree of demonstrable independence that is required.
"Although the FCA seeks to retain ‘flexibility’ and minimise delay, it might assist the FCA to build stakeholder trust and confidence if it did not to seek to control the process so tightly."
The commissioner said the FCA could instead consider a more open tender process, asking stakeholders to suggest names and using a professional search and selection service.
Mr Townsend clarified he thought the appointment of Mr Parker, who he noted had "highly relevant senior legal experience", as independent reviewer of the Connaught case had been suitable.
But he added: "I am surprised to see from the various ExCo, board and sub-committee papers that the FCA considers there are no equality, diversity and inclusion considerations in recruitment exercises of this kind."
However in response to the commissioner's recommendations the FCA said: "We note that the complainant believes the reviewer is capable, and that the commissioner refers to him being suitably qualified with highly relevant legal experience.
"We consider that this supports our view that the appointment process for independent reviewers is appropriate."
