The Metropolitan Police Commissioner says some officers are afraid to admit mistakes lest they lay themselves open to race accusations.
Sir John Stevens was giving evidence at the inquiry
Opening the Morris Inquiry, Sir John Stevens called for an overhaul of how misconduct allegations are handled.
He said officers were "nervous" about dealing with race issues.
The inquiry, headed by former union leader Sir Bill Morris, was set up after criticism over a number of cases involving ethnic minority officers.
It was established by the Metropolitan Police Authority in the wake of cases including that of Superintendent Ali Dizaei, who was cleared of allegations of dishonesty at the Old Bailey last September.
Other cases have included that of Sikh officer Sergeant Gurpal Virdi, who was sacked after being falsely accused of sending hate mail.
He won his job back plus substantial damages in 2002 after taking his case to an employment tribunal.
Sir John said he believed the Met had "moved on" after being branded "institutionally racist" following the Stephen Lawrence murder investigation.
But he said: "In a defensive climate staff and officers are too often afraid to admit mistakes, apologise and move on for fear that by owning up to shortcomings they may themselves become the subject of allegations, especially allegations of discrimination, leading to misconduct proceedings."
"There is a particular nervousness about dealing with issues raised by or about black and minority ethnic staff and officers."
Earlier, when opening the inquiry, Sir John warned racist officers to "get out of the Met now".
Disciplinary system 'antiquated'
He said: "Let me be unequivocal from the outset - there is no place in the Metropolitan Police for racists.
"If you do not believe in the fundamental right of all people to be treated with respect, dignity and compassion then I do not want to share my service with you. You should not try to join."
Calling for reform of disciplinary mechanisms, Sir John said: "The present system is antiquated and should be scrapped.
Ali Dizaei was tipped to be the UK's first ethnic minority chief constable
"With minor exceptions, ordinary employment law should be applicable to police officers even though they retain their position as office holders under the Crown rather than employees of the police service.
"This would lead to a less adversarial approach to disciplinary proceedings and enable the police to rid itself quickly and cleanly of those officers we have reasonable grounds to believe are guilty of serious misconduct."
He added: "It is also patently wrong that we are currently unable to use evidence we may gather using covert techniques in disciplinary proceedings and I hope the law will be changed to allow this to happen in the future."
The Morris Inquiry's findings are expected to be reported in the summer.