Ending Ruan Pienaar's seven-year stay at Ulster could damage the Irish provinces' ability to recruit top global stars, according to Shane Horgan.
Irish chiefs blocked Ulster's attempts to extend Pienaar's contract past next summer, challenging the Ravenhill province to promote from within instead.
The Irish Rugby Football Union (IRFU) has defended the policy of championing home-grown talent in a bid to boost depth at scrum-half, but Horgan remains sceptical.
The former British and Irish Lions wing believes forcing 88-cap Springboks half-back Pienaar to leave Ulster "sends out a bad message" to future potential recruits at all four Irish provinces.
"Ruan Pienaar's been there for quite a number of years, he's performed very well, he's a key member of their culture and has helped developed that," Horgan said.
"There's some risks in that it sends out a bad message to other overseas players.
"It's important not to dissuade other players from building a life here."
"He's come and done the right thing, he's built a life in Belfast. It's never been just a money deal for him. He's invested in the community there, he's invested in the club.
"From that perspective you've got to be wary that you don't stop similar players doing the same thing.
"All the overseas players that have been successful in Ireland have totally embraced the life.
"The ones that haven't been successful are the ones who have come for money. So it's important not to dissuade other players from building a life here."
Ulster issued a statement on Wednesday insisting the Belfast outfit were disappointed not to be able to extend Pienaar's contract once more.
The 32-year-old looks set for a switch to France, though Ulster hope to bring him back to the province in a coaching capacity in the long-run.
The IRFU's performance director David Nucifora countered Ulster's confirmation of Pienaar's situation, insisting the province must instead "develop indigenous talent in this position".
Former Leinster and Ireland wing Horgan fully supports the IRFU's succession planning, but believes Irish bosses may have taken a step too far by ushering Pienaar out of Ulster's door.
"It's an important consideration for the IRFU to develop players for the overall health of the game," said Horgan.
"But players can be developed within the existing framework.
"If there was a player really knocking on the door in that position and that was clear, then fine, but that's not the case at the moment.
"You've got to think about the development of the entire squad. If you take out a key player at nine and you don't have an indigenous player to perform at that level, then you're compromising maybe the development of the whole squad. And you may have to sign someone anyway.
"I understand the philosophy behind it, but it's not just a case of a foreign player leaving means automatically we'll have an international nine slotting in.
"If players there aren't good enough to be pushing consistently, I'm not sure that's going to change just because you give someone more game time."