UK government proposals to improve financial regulation do not improve oversight of risk in retail financial products, the Investment Management Association, the fund management lobby group, has said, while it welcomed other aspects of suggested reforms.

“The proposals do nothing to level the playing field between retail products. In fact, they risk exacerbating the current differences,” Julie Patterson, director, authorised funds & tax at the IMA, said in a statement.

The financial secretary to the UK Treasury, Mark Hoban, has launched a government consultation on the implementation of reforms to financial regulation, giving the Bank of England powers over macro prudential regulation through a Financial Policy Committee (FPC), which is due to be established on an interim basis later in the year.

In terms of oversight of the different parts of the financial system, according to the IMA, the following sub-sectors will apply: banks and insurance companies will be “prudentially regulated” by the new Prudential Regulation Authority (PRA); all firms, including investment managers, will be regulated on conduct of business by the new Consumer Protection and Markets Authority (CPMA), and exchanges, clearing and settlement systems will be supervised by the Bank of England.

The IMA said the proposals do not address some of the issues in the regulation of retail products, because regulation of the content of a product depends on the nature of the said product.

Under the proposals, authorised funds will be subject to rules from the CPMA to protect retail consumers; listed, closed-ended vehicles will be subject to rules from the Financial Reporting Council to protect general investors; meanwhile, insurance products fall within the rules for life companies, subject to supervision from the Prudential Regulation Authority, and bank products “are subject to no real restrictions on the risks of the underlying investments”, according to the IMA.

However, the IMA welcomed the distinction between investment managers and banks, and the separation of supervision of the two types of institutions.

“Investment managers are different from banks and insurance companies. They act as agents for investors of all types. They are not principal risk-takers, were not a cause of the credit crisis and do not represent a systemic risk,” said Patterson.

The fragmentation of supervision under the proposed reforms also poses a danger, said Patterson, and regulators must co-operate closely and continuously.