A blanket ban on traded life policy (TLP) investments would amount to "overkill" and could hamper the UK's ability to compete in global markets, according to SL Investment Management (SL).
Responding to an FSA consultation on TLP investing, SL said the regulator's concerns would be better addressed by producing guidelines.
In November, the FSA described TLPs as "high risk" and said they were generally unsuitable for most UK retail investors.
But SL said the FSA's concerns apply to only a small number of providers and any future ban would therefore amount to "overkill".
A blanket ban should only be used as a "last resort", it added.
SL argued advisers should be permitted to consider TLPs for clients, pointing out a central tenet of the RDR is the promotion of choice for consumers.
"We consider a blanket ban should only be used as a last resort where other regulatory processes and controls are unable to adequately control the risks," said SL investment director and former chair of the European Life Settlements Association, Patrick McAdams.
Earlier this month, EEA Fund Management urged the FSA to retract its reference to TLPs as "toxic", saying the regulator's statement was "without merit and reckless".
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