The FCA has proposed to harmonise rules governing the way in which fund managers and discretionary investment managers operate in its Discussion Paper: Updating and Improving the UK regime for Asset Management.

In the paper the FCA said that Brexit has provided an opportunity to bring the regulation of the fund management wealth management sectors into greater alignment, specifically where retail portfolios are “based on a standard service.”

PIMFA said its members were “deeply concerned” that this would result in rules that have been specifically designed for the management of funds, being inappropriately extended to managed portfolio services.

The wealth management trade body added that aligning regulation in this way would “effectively ignore the significant differences between fund managers, who create and manage pre-packaged investment products, and discretionary investment managers, who provide a service where the client is the owner of the underlying assets held within the portfolio.”

PIMFA sees no benefit in applying product regulation to MPS and said it has warned the FCA that the cost implications of restructuring regulation in this way could result in MPS being economically unviable for firms to offer.

In the discussion paper the FCA suggested that retail portfolio managers are currently regulated to a lower standard than fund managers.

PIMFA disagreed with this statement and said that while the paper identifies a number of areas where Handbook requirements applied to fund managers are not replicated for portfolio managers, it neither analyses how appropriate those requirements might be for segregated retail portfolios, nor considers the wide range of alternative regulatory safeguards that apply to portfolio management.

The trade association said the extension of fund rules to MPS would be inappropriate in almost all cases.

Liz Field, chief executive of PIMFA, said: “There are very serious concerns within the wealth management community about these proposals.

“New rules that seek to align the way that fund managers and discretionary investment managers are regulated would load unnecessary and disproportionate burdens onto the latter.

"Moreover, discretionary investment managers would be forced to comply with requirements that have little bearing on what they do and show little understanding of the services they provide. It is also questionable whether such sweeping changes should be contemplated before regulators and industry have a chance to assess the impact that the new Consumer Duty has in improving outcomes for retail consumers.

“The distinct differences and the undeniable need for appropriate and proportionate approaches for the benefit of firms and their clients has been widely accepted and catered for in the past. We hope to see this continue in the future and would much rather that policymakers used a scalpel and not a sledgehammer when it comes to reforming EU regulations.”

PIMFA also urged the Government and FCA to consider not only the potential costs of future changes to regulation, but also the costs that firms have incurred in implementing major items of EU legislation.