Britain needs to introduce
The Parliamentary Commission on Banking Standards also said the government could set tougher rules for how much leverage banks were allowed, adding the committee itself would consider next year whether to propose banning proprietary trading.
The PCBS said on Friday banks should be allowed to sell simple derivatives within their ring-fenced operation, which had been a point of contention.
Britain, going further than most countries in pushing through change, is forcing banks to separate, or "ring-fence", their domestic retail arms from riskier investment banking.
"The proposals, as they stand, fall well short of what is required. Overtime, the ring-fence will be tested and challenged by the banks," PCBS chairman Andrew Tyrie said.
"That is why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it."
Britain wants to prevent a repeat of the need for taxpayers to bail out lenders, as happened in 2008 with a 65 billion pound ($106 billion) double rescue of Lloyds Banking Group and Royal Bank of Scotland.