Trade association’s comments follow the recent proposed ban by the Financial Services Authority (FSA) of the life settlement asset class for retail investors.
Stephen Gay, director general of Aifa, said the FSA’s recent warning on the life settlement class has already forced one fund to close.
He said this had caused real consumer detriment and may, in fact, have harmed the very people they were seeking to protect.
Mr Gay said there must now be a review to establish if this closure was likely to happen regardless or if it was the direct consequence of the regulator’s intervention.
He said: “This demonstration of the regulator’s increasingly interventionist approach does raise more general concerns about the impact it will have on the market in future.
“If the regulator is to have significant product intervention powers, it is vital we know how they will work in practice and how they will assess the impact.
“There are risks that intervention can have a negative impact on innovation and competition. The proportionality principle is key and it is incumbent upon the regulator to demonstrate how it has taken this into account in its decision-making.
“The system of accountability for the regulator has relied on internal self-assessment with the result that there have been few external effective checks and balances in place. The FSA must be much more accountable for its actions.”