The ABI has hit out at the FSA's enforcement procedure, describing it as unclear and failing to "command confidence within the regulated community".
In its response to the FSA's Enforcement Process Review, the ABI said the regulator's enforcement procedures needed to provide "greater transparency, objectivity and certainty".
The ABI recommended three key steps to improving its enforcement process.
First, the FSA should "make more effective use of its normal supervision of firms before embarking on specific enforcement action".
Second, the FSA should "improve the quality of its investigatory work".
Third, it must demonstrate more openly that the work of the Regulatory Decisions Committee is "independent, fair and robust".
ABI director of financial regulation and taxation Peter Vipond said: "The FSA needs to address industry concerns about its tendency to build a general case in terms of a very small number of cases and its willingness to apply some standards retrospectively."
In February, the FSA was heavily criticised by the Financial Services & Markets Tribunal over its handling of the Legal & General endowment mis-selling case.