The Financial Services Authority (FSA) needs to do more to combat financial crimes, according to a report by the National Audit Office (NAO).

The NAO said that “the fight against crime had received less attention than other elements of the FSA’s responsibilities”, and that it needed to step-up its policing of small firms if it is to combat crime better.

However, the NAO said that the FSA was doing a good job overall in its primary role of educating and protecting customers from sharp practice and questionable operators.

“It worked well with other UK regulators and helped boost financial capability,” said Sir John Bourn, head of the NAO. “It has also done well in creating strong and effective structures.”

But the FSA could be more effective in the fight against financial crime, even though it spends 10% of its annual budget on this undertaking. The NAO reckoned that the FSA could spend this money “more wisely”.

The NAO report said: “The FSA could improve the effectiveness with which it uses the current level of resources. Greater weight should be given to fighting financial crime at smaller companies at present.”

In response, the FSA said that it had recently formed its Financial Crime and Intelligence Division to increase its effectiveness at combating fraud and improving staff training.