UPDATE 1-Lawmakers to grill UK watchdog over scrapping of banking culture review

* FCA chair, CEO to be quizzed on January 20

* Osborne says McDermott does not want job permanently (Adds more detail, Osborne on McDermott)

By Huw Jones

LONDON, Jan 7 (Reuters) - The heads of Britain's FinancialConduct Authority will be asked later this month by a panel oflawmakers to explain their "curious decision" to ditch a reviewinto banking culture.

The review was part of the FCA's 2015 business plan but lastmonth it was shelved, sparking concern among some lawmakers thatthe watchdog was under pressure from the government to softenits approach to banks.

Improving the way they operate is seen as core to restoringtrust in banks that have been fined billions of dollars over thepast four years for trying to rig interest rate benchmarks andforeign exchange markets.

The FCA has said that engaging with banks individually was abetter way of improving conduct.

"The FCA's decision to drop its review of bank culture doesseem curious," Andrew Tyrie, chairman of parliament's TreasurySelect Committee, said in a statement.

The committee has asked FCA Chairman John Griffith-Jones,and acting chief executive, Tracey McDermott, to appear beforeit on January 20.

It is not the decision to drop the review that is crucial,but the need for the FCA to fully implement reforms set out in aparlimentary report to improve conduct in banking, Tyrie said.

The lawmakers will assess the watchdog's efforts to meet theextra responsibilities given to it over the last few years.

"Getting it right - securing better protection for consumersand markets while at the same time ensuring they don't make lifeunduly burdensome for business, from which everyone wouldultimately be the loser - is a big undertaking. The Committeewill want assurance from the FCA that it is up to the job,"Tyrie said.

The FCA was launched in 2013 with a remit to protectconsumers after its predecessor, the Financial ServicesAuthority, failed to spot the costly 2007-09 financial crisiscoming or end a string of mis-selling scandals from pensions tohome loans.

Britain has been among the toughest of banking regulatorssince the crisis, with the Bank of England and FSA engineeringthe departure of Bob Diamond as head of Barclays in 2012 afterthe bank was fined for trying to rig the global Libor interestrate benchmark.

Britain's finance minister, George Osborne, signalled achange in tone last year by calling for a "new settlement" withbanks as HSBC decides whether to move its head officefrom Britain.

Osborne has also ousted Martin Wheatley, the hardlineinaugural chief executive of the FCA, whose role McDermott hasbeen temporarily filling. The finance ministry has also easednew rules making top bankers more accountable from next March.

Osborne told the BBC on Thursday he played no role in theFCA's decision to scrap the culture review.

"That was a completely independent decision that I had noadvance warning of, no foreknowledge of. It's got to be anindependent decision for our banking regulator," Osborne said.

Osborne, who is expected to name the FCA's new CEO in thecoming weeks, also said that McDermott does not want the top jobpermanently. (Additional reporting by Andy Bruce; editing by Jason Neely,Greg Mahlich)