(Adds comments from FCA officials, more lawmakers)
By Tommy Wilkes and Huw Jones
LONDON, Feb 22 (Reuters) - Britain's financial regulator should rethink its plan to curb greenwashing because it risks disrupting 91 billion pounds ($110 billion) of investments and could damage faith in sustainable investing, the head of an investment managers' industry group said on Wednesday.
The Financial Conduct Authority's (FCA) sustainability disclosure requirements (SDR) are aimed at protecting consumers from fund managers exaggerating their climate credentials and arming savers with better information about where their money goes.
Chris Cummings, chief executive of The Investment Association, told a British parliamentary hearing that the requirements, if not changed, would exclude 60% to 70% of all retail investments as they don't allow several types of funds.
"These rules go well beyond climate change and start to look at areas like social and good governance ... standards are not there yet," he told parliament's Treasury Select Committee.
"My great worry behind all of this is we are going to have an industry where we have seen over 91 billion pounds invested so far, where actually consumers will feel they somehow have been misled just because the regulator said today this is what good looks like, but tomorrow only a third of that, and say to industry you have got 12 months to change."
FCA officials said the sector will begin adapting ahead of the rules, as it did with similar rules in the European Union.
They rejected concern among lawmakers the new regime would create "bubbles" as money flocked to the fewer funds that qualify as sustainable.
"We are going to make sure the market has time," Sacha Sadan, the FCA's director of ESG, told the committee, adding that the proposed rules would be tweaked to reflect some feedback.
Sadan was "confident" more than 30% of existing funds will end up qualifying as sustainable.
Lawmakers on the committee examining the FCA's proposals put Cummings on the defensive over his criticism that too many funds will be excluded.
"If you want to drive investment into properly regulated funds that aren't lying about their green credentials, surely you have to have standards that allow that to happen?" Angela Eagle, a lawmaker from the opposition Labour Party, told Cummings.
Committee chair Harriett Baldwin expressed "shock" that the FCA had not considered enforcement action for misleading investors, or compensation for the cost of switching to funds that meet the new rules.
FCA sustainable finance specialist Mark Manning urged caution, saying there have been no clear standards on what is sustainable, and SDR will give regulators a "much stronger basis" to punish greenwashing in future.
The FCA last month closed a public consultation on SDR and said recently that one third of funds in Britain currently marketed as sustainable would no longer qualify for the label and another third would choose not to use it.
Kate Levick, associate director of sustainable finance at think tank E3G, told the hearing the FCA's plan "would remove the significant amount of greenwashing currently in the market". ($1 = 0.8290 pounds) (Reporting by Tommy Reggiori Wilkes and Huw Jones; Editing by Mark Potter and Emelia Sithole-Matarise)