UK regulator says banks remain complacent over culture

* FCA's Wheatley says cultural change too slow

* FCA McDermott says won't back off on big fines

By Huw Jones

LONDON, Dec 2 (Reuters) - Banking is still in the early stages of the cultural change needed to regain public trust after a series of scandals that are already prompting customers to switch lenders, Britain's top financial watchdog said on Tuesday.

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA) said "culturally complacent" banks should realise that customers can switch to new entrants far more easily now if they don't like the behaviour they see.

Banks should have "zero tolerance" for misconduct, he said.

His comments echo those from an independent think tank last month which said it would take a generation to fix a "toxic culture" in banking.

The FCA fined five banks, including Britain's RBS (LSE: RBS.L - news) and HSBC, $1.77 billion last month for failing to stop traders from trying to manipulate the foreign exchange market. This followed fines for banks who tried to rig interest rate benchmarks.

Wheatley said board members were committed to improving standards but the message was not reaching frontline staff at banks and more urgency is needed.

"This is an industry that remains in the foothills of cultural reform," he told an FCA enforcement conference.

Tracey McDermott, the FCA's director of enforcement, said the forex fines came despite the "PR" statements from banks fined for misconduct over a decade or more.

After each penalty, lenders were "depressingly consistent" in saying misconduct was due to a few individuals, that changes were being made and that it would not happen again.

"Of course it did happen again," McDermott said.

The watchdog is set to clock up another record total for fines in 2014, but McDermott rejected criticism that the FCA was a "Soviet tractor factory" hell bent on meeting penalty quotas.

The FCA was "absolutely determined" to make individuals accountable for their decisions.

"This is vital if we are going to weed out the morally unacceptable," she said. (Reporting by Huw Jones)