Stephen Abell Credit: PCC Tim Toulmin, who was director from 2003 to 2009, argued that the body "did test the boundaries of its power" in dealing with phone hacking at News International, but admitted that it lacked the power of a proper regulator.
The former director agreed with Lord Justice Leveson that the PCC has been miscategorised and was thought of as a regulator by the public, "when it isn't actually a regulator at all".
Current director Stephen Abell echoed Toulmin's sentiment, telling the inquiry that the body was "primarily a complaints handling body" that had taken on "aspects of a regulator" without the structure and power to properly execute them.
"It has some of the functions of a regulator, a code of practice, training, they are regulatory functions, but I don't think the PCC should self-describe as a regulator."
The commission was widely criticised for its role in the phone-hacking scandal after it published a report in 2009 that supported News International's claim that hacking was the work of one rogue reporter and criticised the Guardian over its reporting of the story.
Inquiry counsel Robert Jay put it to Toulmin during his testimony that there had been an expectation that the PCC would "pull its punches" over phone hacking and "not test the limits of its powers".
Toulmin denied the assertion, but admitted that the PCC had made a "major mistake" in supporting News International's position.
He said the commission's much-criticised action on phone hacking was "an exercise designed to produce a forward looking report, to set some principles by which internal governance could be enhanced", rather than an investigation, and conceded that the commission had not properly investigated hacking "because it couldn't".
Giving evidence after Toulmin, who was questioned for more than three hours, current director Abell said that the PCC did not have the power to investigate "systemic" problems like phone hacking.
He denied that there was a "special relationship" between the PCC and News International that had prevented a proper investigation, telling the inquiry that its stance had come from dealing with "corporate figures" at the publisher.
Asked for his thoughts on reform of the regulatory system, Abell told Leveson that trying to catch all publishers that perform a "newspaper-like function" within its scope was "not practicable", and recommended instead that "major players" be enticed to join by membership benefits.
He also suggested a "kitemarking" system, operating as a kind of seal of approval for publications that were signed up to a regulatory body.
Evidence relating to the PCC continues tomorrow with appearances by current chairman Lord Hunt, former chairman Lord Grade and Sir Christopher Meyer, a lay member of the code of practice committee.
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