The move to scrap the review comes after Martin Wheatley, the watchdog's chief executive, was defenestrated by the Treasury in the summer and reflects a more positive tone towards the City of London following the Conservative party's election victory.
Banking culture has come under fire since the financial crisis over foreign exchange and Libor rate-rigging scandals that have led to multibillion pound fines. Mis-selling to consumers has also cost the banks, with payment protection insurance alone forcing them to earmark more than £26bn for claims.
Mark Garnier, a Conservative MP and member of the Treasury select committee, told the Financial Times that it was "disappointing" that the watchdog had stopped its review so early.
"I hope this is a delay rather than a cancellation because consumers need to know that an independent regulator is happy, overall, with bank standards," he said.
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Labour MP John Mann said it was "unacceptable" that the review has been dropped.
"As far as we know, the culture hasn't changed yet — that's very clear to people. Cultural problems were fundamental to the financial crisis and remain fundamental now. Lessons haven't been learnt," he said.
The watchdog's review was unveiled in its annual business plan this year and formed an integral part of its strategy laid out to parliament, business and consumers on how it would regulate financial services.
The review was intended to determine whether programmes to shift culture in retail and wholesale banks were "driving the right behaviour". It focused on a range of issues such as bankers' pay, appraisal and promotion decisions of middle management, and how concerns were dealt with.