The Conservative Party, widely expected to win an election next year, said on its web site the country needed a "strong regulator" and its plans to create one would be set out later in its "plan for sound banking" document.
"Given everything that has happened, it would be bizarre to stick with a system of regulating the banks that failed so spectacularly," the party's finance spokesman George Osborne said on the site.
He will make a speech detailing his plans later in the day.
The well-heralded proposal would dissolve the "tripartite" system of regulation, split between the FSA, the Bank of England and the Treasury, introduced 12 years ago by Prime Minister Gordon Brown when he was finance minister.
The Conservatives blame the division of responsibilities for failures that led to the state rescue of mortgage Northern Rock in 2007 and the subsequent bail-out of other major British banks.
Osborne, who is set to become finance minister in a Conservative administration, will detail plans to abolish the FSA, Britain's main banking watchdog, and transfer its responsibilities to the Bank of England, which would set up a new Financial Policy Committee to work alongside the interest rate-setting Monetary Policy Committee.
The Conservatives are maintaining consistently large opinion poll leads over the ruling Labour party with an election due by May next year.
Experts say the prospect of the FSA being stripped of key powers undermines its ability to regulate forcefully from now until the next election.
"The Tory (Conservative) proposals would abolish an independent, expert regulator, while diverting attention from banks that took excessive risks that led to this crisis," Treasury minister Lord Myners said.
The proposals are also expected to include new powers for the Bank of England to regulate the pay, risk, and the size and structure of financial institutions.
According to Monday's The Times newspaper, the Conservative proposals would also mean Lloyds Banking Group and the Royal Bank of Scotland may have to sell part of their businesses.
The newspaper said the party planned to hold a competition inquiry into the part-nationalised Lloyds if it returns to power in a general election due by next June.
"The findings ... will help to inform a Conservative government's strategy for disposing of its banking shares," the party's finance spokesman George Osborne will say later on Monday, the paper added.
Britain holds large stakes in RBS and Lloyds, created by the merger of banking groups Lloyds TSB and HBOS, following last year's banking crisis.
Depending on the outcome of the inquiry, the Conservatives may decide to legislate for a partial break-up of Lloyds and to a lesser extent of RBS, the paper said.
A Conservative government would also require banks that combine retail and investment arms to hold additional capital to limit their ability to indulge in high-risk trading, it added.
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