The concerns stem from recent figures showing the increasing amount of compliance burdens companies have to deal with.
According to Ms Badenoch, jobs related to compliance functions now account for about 10pc of an average workforce, a sign the pendulum had swung too far towards risk-aversion.
She also echoed a statistic from former Bank of England ratesetter Andy Haldane, who said in 1980 there was one UK regulator for every 11,000 City workers, while in 2013 this had risen to one regulator for every 300 workers.
Others, however, point out that much of the growing compliance burden has ballooned under the Conservative government.
A report by the Centre for Policy Studies, a right-leaning think tank, last week revealed that the cost of regulation on businesses had grown by £6bn per year since 2010, which is the equivalent of an extra 2p in corporation tax.
The threat of Westminster targeting the FCA could also backfire, some argue, as it may discourage the regulator from reducing red tape.
A financial services lawyer said: “There’s always tension and there should be tension with politicians because the regulator shouldn’t be able to do what it wants. However, the question is what forum do you choose to have those conversations constructively.
“I wouldn’t say this way is the best way to influence the regulator.”
An FCA spokesman said: “We embrace our secondary objective to facilitate international competitiveness and growth alongside the primary objectives given to us by Parliament to protect consumers, market integrity and effective competition.
“Where we see potential issues with compliance with the law, as we have with motor finance or ongoing advice charges, we have to act to assess the evidence and try to bring clarity.
“And it is important for competitiveness that we do, because long-term growth relies on trust in financial services.”
