A war of words broke out between regulators today as an independent panel set up by the Financial Services Authority (FSA) rounded on the chief City watchdog accusing it of launching an "assault" on consumer rights.

The Financial Services Consumer Panel, set up by the FSA ten years ago to police its activities, said it fiercely opposed the launch of a discussion paper that appeared to put more onus on consumers for safeguarding their interests.

As it launched the paper, the FSA said that it believed markets would work more efficiently if consumers were encouraged to consider their own interests more effectively.

But the panel reacted angrily. It said it was questioning the paper — entitled Consumer Responsibility — which came at a time when consumers' confidence in financial services is at an all-time low.

Adam Phillips, the panel's acting chairman, said: "While we are not arguing with the need for consumers to answer questions honestly and read key information, the FSA document provides an opportunity for the industry to attack consumers’ rights, when it is the industry itself which needs to get its house in order and take responsibility for its actions.

"It’s also a time when many firms have been exposed as not giving consumers a fair deal, from the selling of personal protection insurance, to pension transfer advice and dealing with mortgage arrears."

Mr Philips said the panel had made its opposition known to the FSA and would "pursue this line vigorously" over coming months.

The FSA dismissed the panel's objections as "nonsense", pointing out today's document was only a discussion paper and was meant to provoke debate.

A spokesman said: "Considering the FSA's massive commitment of resources and focus on increased supervision and more intrusive regulation, coupled with the huge amount of work we have done to raise the capability and confidence of consumers, it is nonsense to suggest that this discussion paper is an 'assault on consumer rights'."

The frosty exchange between the two organisations is bound to prompt some mutual discomfort. The FSA and the panel share an office building in London's Canary Wharf.

It came just over a week after the panel, chaired by Nick Prettejohn,e head of the Prudential in the UK, argued that the FSA was prioritising consumer protection issues above its basic duties as a regulator.

The FSA added that it wanted other consumer organisations, including Which? to join the debate, saying that it hoped to be able to improve consumers' decision-making and reduce complaints over the longer term.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive