The FCA in July proposed the new listing category in a move seen as helping London to court the initial public offering of Aramco, which is likely to be the largest ever IPO. The oil giant is also looking at rival financial centre New York.

The watchdog has not issued any final rules, but lawmakers and Britain's leading trade body for the investment industry worry the proposed changes would not give investors enough protection.

In a letter to parliament's Treasury and Business Committees, FCA Chief Executive Andrew Bailey said the proposals were consistent with the finance ministry's recommendations to the watchdog in March.

"The recommendations include the point that London retaining its position as the leading international financial centre supports the aim of sustainable economic growth," Bailey said.

"Those recommendations had been discussed with Treasury."

Bailey said he has had no conversations with ministers about plans to reform the listing rules.

"However, given the public discussion of these events, we can confirm that we held conversations with Saudi Aramco and their advisors in light of their interest in a possible UK listing in the early part of this year," Bailey said.

"We emphasised during those conversations that we were reviewing the Listing Regime."

TSC Chair Nicky Morgan said on Friday that questions remain about the level of political involvement in the consultation.

"The UK's world-class reputation for upholding strong corporate governance mustn't be watered down," Morgan said in a statement.

Separately on Friday, Royal London Asset Management, with over 20 billion pounds invested in Britain's stock market, said the new listing category is problematic and unnecessary.

"While we fully support the case that the UK must stay competitive in a growing global marketplace, we do not think re-writing the rules is the correct way to go about it," its corporate governance manager Ashley Hamilton Claxton said.

Bailey said in his letter that protections for investors will not be weakened under the proposals. He is due to appear before the TSC later this month in a regular hearing in parliament.

(Reporting by Huw Jones; editing by Keith Weir and Jason Neely)

By Huw Jones