The Treasury yesterday announced the first formal review of the Financial Services Authority since the super-regulator was created five years ago.
Treasury Minister Ed Balls said he had asked the National Audit Office to review the "economy, efficiency and effectiveness" with which the FSA had used its resources.
It will stop short of reassessing the FSA's remit.
The review will be the first carried out under the December 2001 law that merged a large number of bodies to create a single regulator with broad responsibilities for super-vising financial services markets, exchanges and firms.
The NAO will start work on the review in July and the Treasury plans to present a report in the first half of next year, Mr Balls said in a written statement to Parliament.
The review will look at the FSA's internal performance management, its joint work with other organisations in Britain, its international influence and representation, combating financial crime and financial capability.
The FSA has faced criticism from consumer groups that it does not protect the interests of small investors strongly enough whereas large financial groups have accused it of being heavy-handed.
"We'll be working with the NAO over the next few months," a spokesman for the FSA said.
On internal performance, the audit will look at the effectiveness of the FSA's non-executive directors, while the review of the watchdog's work with other organisations will consider dealings with the Pensions Regulator, the Financial Reporting Council and the Office of Fair Trading.
On financial crime, a key part of the FSA's work, the review will look at the regulator's performance in combating the problem including work on terror-ist finances and its use of existing powers and penalties.