By Paul Lewis
BBC Radio 4's Money Box
Investors could be at risk under plans to weaken consumer protection for foreign firms listed in London.
Influential people have expressed concern at the FSA's proposals
Foreign investment companies are exempt from rules introduced after investors lost hundreds of millions of pounds in split capital investment trusts.
Now there are warnings of another financial scandal if City watchdog the FSA does not change its mind.
The companies' trade body wants all firms to be subject to the same regime wherever they are based.
The change in the rules is partly to attract foreign companies to list their shares in London and bring more business there.
But Daniel Godfrey, director general of the Association of Investment Companies told BBC Radio 4's Money Box that if the weaker rules applied investors would be at risk.
"They wouldn't be required to have an independent board of directors or to state the investment policy or how they've applied it. Nor would they be subject to rules brought in after the splits crisis that stopped companies having crossholdings in other companies," he said.
It was cross investments in each other that led to the collapse of the splits companies which cost 50,000 retail investors hundreds of millions of pounds.
Mr Godfrey added the weaker regime could then have to apply to UK companies as well: "Our view is it is not tenable to keep it for foreign companies only.
"There are rules about discriminating against companies because of their domicile."
Mr Godfrey's concerns are echoed by the chairman of the Parliamentary Committee which investigated the splits scandal, John McFall MP.
He said: "I don't want to see in a year or so people appearing before the Treasury Select Committee and saying it was an oversight. I want any holes plugged before that time.
"Why open up the possibility of a scandal in the future when it could be nailed down and avoided now?"
He was joined by the chairman of the FSA's own consumer panel John Howard: "This proposal would open consumers in the UK to the real risk of investing in companies that suffered a collapse or caused them to lose their money.
"Things that protect customers ought to apply to all investment companies no matter where those companies are based."
Dan Waters, the director at the FSA which has proposed the change, warned that even if the change was made shares in companies listed in other European stock markets could still be bought here without this protection.
"The FSA cannot prevent the offer and sale to retail investors in this country of products that meet the minimum EU requirements listed in Dublin and Amsterdam," he told the programme.
But he did concede that they would be looking at one regime for the future: "The distinction on the basis of domicile is a historical one.
"Without announcing in advance what our decision would be I would be surprised if that was part of the new regime. There are attractions to a unitary regime."
BBC Radio 4's Money Box was broadcast on Saturday, 3 March 2007 at 1204 GMT.
The programme was repeated on Sunday, 4 March at 2102 GMT.