Lord Kilclooney, will not face any sanctions for calling US vice-president-elect Kamala Harris “the Indian”.
The standards commissioner said that as the comment was made on Twitter, it was outside her power to investigate, the News Letter reported.
The Lord Speaker of the House of Lords, Lord Fowler, has now suggested that its code of conduct should be reconsidered.
The House of Lords said it could not comment on the case.
Ms Harris made history as the first female, first black and first Asian-American US vice-president-elect.
“What happens if Biden moves on and the Indian becomes President. Who then becomes Vice President?” tweeted Lord Kilclooney.
In a letter to complainants, Commissioner for Standards Lucy Scott-Moncrieff said that the House of Lords code of conduct “requires members to treat those with whom they come into contact during their parliamentary duties and activities with respect and courtesy”.
“Even though Lord Kilclooney includes his title in his Twitter handle, his conduct on Twitter does not necessarily constitute a parliamentary activity,” she said.
“Therefore, in this instance, Lord Kilclooney’s conduct on Twitter does not fall within the scope of the Code and it is outside my power to investigate.”
Lord Kilclooney is a former deputy leader of the Ulster Unionist party, but now sits as a cross-bench peer.
On Thursday the Lord Speaker wrote to the House of Lords Conduct Committee, on behalf of the House of Lords Commission.
Lord Fowler urged them to reconsider the scope of the code of conduct for members, in light of recent events involving members “whose conduct in the public realm (including on social media) has fallen short of the standards we would expect”.
“That conduct, despite having occurred outside of the discharge of their parliamentary duties or activities, could be regarded as having brought the House into disrepute, as could the Code’s inability to deal with such conduct,” he said.
The House of Lords said it cannot comment on complaints if they do not progress to a formal investigation.
After Lord Kilclooney tweeted his remark, the Lord Speaker called on him to “retract and apologise” and Lord Kilclooney later withdraw the remark.
However, the Northern Ireland peer denied his tweet was racist and did not apologise for his original comment.
Several members of Parliament lodged complaints with the Lord Speaker’s office.
Stormont’s First Minister Arlene Foster tweeted that “identifying a person by their race is offensive”.