The Chancellor is under fire after a City regulator dropped its review into Britain's banking culture.
Shadow chancellor John McDonnell said that if George Osborne does not use his influence to keep the Financial Conduct Authority's (FCA) review going, he will be letting down the public.
Liberal Democrat leader Tim Farron, meanwhile, said that any "hope of change and progress" had been "dashed" as a result of the decision.
The FCA's review was set up to examine and compare behaviour within the banking sector after a series of scandals reduced public confidence in the industry.
The regulator had intended to look at whether pay and bonuses had led to previous misconduct.
Financial Conduct Authority
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Video: Jun: Bankers To Lose More Bonus Pay
Earlier this year, the FCA told banks they had to learn lessons after billions of pounds in fines were levied as a result of foreign exchange and Libor rate-rigging scams.
But now the FCA has announced it will instead "engage individually with firms to encourage their delivery of cultural change".
Mr McDonnell said: "This will be a huge blow to customers and taxpayers who are all still paying the price for the failed culture in the banking sector that's been widely attributed to be among the main causes of the crash and the scandals over Libor and price fixing.
"But what is also worrying is that they are ditching this review and replacing it with a potentially watered down version despite the obvious fact that we haven't got to the bottom of cultural mispractice and when as far as we know there is still a problem.
"The Chancellor therefore cannot stay silent on this issue. It's time he used his influence to keep this review going.
"Otherwise he's letting down the rest of us who bailed the banks out and also allowing a signal to be sent to carry on regardless."
Mr Farron said: "The public are rightly fed up with the banking sector marking its own homework and cutting out anyone with a critical eye.
"Cosy decisions between the banks and politicians, and a toothless regulator, led us to one of the biggest financial crashes in living memory.
"To do anything other than operate with complete transparency, and with proper checks and balances, will be reckless and will undermine public trust."
In a statement, the FCA said: "A focus on the culture in financial services firms remains a priority for the FCA.
"There is currently extensive on-going work in this area within firms and externally.
"We have decided that the best way to support these efforts is to engage individually with firms to encourage their delivery of cultural change as well as supporting the other initiatives outside the FCA."
The Treasury said the Government was not involved in the FCA's decision.
A spokeswoman said: "The independent FCA is responsible for ensuring that the top management of banks instil the right culture and standards of conduct in their institutions.
"This decision by the independent FCA reflects its view that the best way of doing this is for it to support individual firms to bring about change within their organisations.
"The Government was not involved in this decision, to suggest otherwise is wrong."
"The Government has been absolutely clear that the integrity of the City matters to the economy of Britain, which is why we have taken action to improve conduct across the banking sector and deal with the abuses and unacceptable behaviour of the past."
Shadow chancellor John McDonnell said that if George Osborne does not use his influence to keep the Financial Conduct Authority's (FCA) review going, he will be letting down the public.
Liberal Democrat leader Tim Farron, meanwhile, said that any "hope of change and progress" had been "dashed" as a result of the decision.
The FCA's review was set up to examine and compare behaviour within the banking sector after a series of scandals reduced public confidence in the industry.
The regulator had intended to look at whether pay and bonuses had led to previous misconduct.
Financial Conduct Authority
Play video "Jun: Bankers To Lose More Bonus Pay"
Video: Jun: Bankers To Lose More Bonus Pay
Earlier this year, the FCA told banks they had to learn lessons after billions of pounds in fines were levied as a result of foreign exchange and Libor rate-rigging scams.
But now the FCA has announced it will instead "engage individually with firms to encourage their delivery of cultural change".
Mr McDonnell said: "This will be a huge blow to customers and taxpayers who are all still paying the price for the failed culture in the banking sector that's been widely attributed to be among the main causes of the crash and the scandals over Libor and price fixing.
"But what is also worrying is that they are ditching this review and replacing it with a potentially watered down version despite the obvious fact that we haven't got to the bottom of cultural mispractice and when as far as we know there is still a problem.
"The Chancellor therefore cannot stay silent on this issue. It's time he used his influence to keep this review going.
"Otherwise he's letting down the rest of us who bailed the banks out and also allowing a signal to be sent to carry on regardless."
Mr Farron said: "The public are rightly fed up with the banking sector marking its own homework and cutting out anyone with a critical eye.
"Cosy decisions between the banks and politicians, and a toothless regulator, led us to one of the biggest financial crashes in living memory.
"To do anything other than operate with complete transparency, and with proper checks and balances, will be reckless and will undermine public trust."
In a statement, the FCA said: "A focus on the culture in financial services firms remains a priority for the FCA.
"There is currently extensive on-going work in this area within firms and externally.
"We have decided that the best way to support these efforts is to engage individually with firms to encourage their delivery of cultural change as well as supporting the other initiatives outside the FCA."
The Treasury said the Government was not involved in the FCA's decision.
A spokeswoman said: "The independent FCA is responsible for ensuring that the top management of banks instil the right culture and standards of conduct in their institutions.
"This decision by the independent FCA reflects its view that the best way of doing this is for it to support individual firms to bring about change within their organisations.
"The Government was not involved in this decision, to suggest otherwise is wrong."
"The Government has been absolutely clear that the integrity of the City matters to the economy of Britain, which is why we have taken action to improve conduct across the banking sector and deal with the abuses and unacceptable behaviour of the past."
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