The completion of the human genome map in 2000 has led to a boom in genetic research and services.
Until then, much of the focus was on single-gene disorders, such as Huntingdon's and cystic fibrosis.
But the breakthrough led to the possibility of new and better screening and treatment for a range of more complex disorders.
Health firms have already started to exploit the issue by offering genetic testing, which can give people an idea of the risk they face of getting a range of diseases from heart disease to Alzheimer's.
The committee said it was concerned that unproven claims were being made and that individuals were not being offered the proper support and counselling to understand and cope with the results.
It said a voluntary code should be introduced to improve standards - official regulators are powerless to act as many of the companies offering such tests are based outside the UK and sell their services over the internet.
The peers said the EU could also re-classify genetic testing from low to medium risk to reflect the psychological impact the results can have.
Lord Patel, chairman of the report, said it was essential for the government to produce a new policy paper on the issue as the last was six years ago and was now out-of-date.
He added: "It is an ever-developing technology that presents both challenges and exciting opportunities."
Experts welcomed the report.
Sir Mark Walport, director of the Wellcome Trust, said the report offered a "much-needed blueprint" for the future.
"We must act now to prepare the health service and the public to gain maximum benefits from genomic medicine."
The call for better regulation of the private testing market was even welcomed by firms working in the industry.
Brian Whitley, founder of GeneticHealth, a UK company which offers genetic testing but does not sell over the internet, said he was "very much" in support of better regulation.
"It is completely wrong to give people results without offering counselling."
A spokeswoman for the Department of Health said the government was fully-committed to "harnessing the potential" of genetic testing and research.
"We will carefully consider the recommendations before formally responding."
Though the recommendations were aimed at the private sector, the committee also said there was unequal access to genetic services provided by the NHS.
Genetic testing and subsequent treatment is already available for a range of disorders, such as breast cancer, as well as to work out which drugs an individual responds best to.
The report said individual trusts needed more help to develop and set up specialist genetic services as the issue was only going to become more pressing in the future.
It further suggested mainstream NHS staff outside specialist genetic departments needed more training to help them deal with the "increasing demands" being placed on them by people worried about test results.