The way that the Financial Services Compensation Scheme is funded is a “grotesque injustice” against advisers and also unsustainable, the FCA has been told.

The SimplyBiz Group has outlined the key changes it believes needs to be made to regulation as part of the Financial Advice Market Review.

In a letter to the FCA, published this morning, it heavily criticised the method of paying for the FSCS.

The company said: “The FSCS is an essential element of the framework of consumer protections. However the current funding model, with the adviser bearing the costs for this compensation fund, is grossly unfair and unsustainable. The current method is so unfair as to be a grotesque injustice in respect of IFAs.

“An IFA has no possibility of being aware of a firm that is creating future liabilities, nor influencing it, or preventing it, yet despite this they have to pay 100% of the costs of compensation.”

Various advisers have criticised rising costs to fund the FSCS over the last year. Quentin McCormick CFPCM, Chartered MCSI, director Of Pavis Financial Management, recently told sister publication Financial Planner magazine his FSCS bill had risen by about 300%.

Out of the four parties involved in the advice process, only the adviser pays the costs of compensation and the firm said this was wrong.

The advice firm has “no ability to influence, prevent or even be aware of a potential problem firm - the one creating the liabilities for the FSCS through being careless, reckless or plain dishonest in the advice they give and the business they run”, SimplyBiz said.

It has proposed that product providers should become the primary source of funding of the FSCS, saying they have “significantly greater market intelligence than anyone other than the regulator”.

Providers should be capable to identify ‘problem firms’ at an early stage, it said.

The letter stated: “Either providers could bear the full costs, or, advice firms could make a token contribution – with advisers paying 20% of the cost of the FSCS and providers contributing the balance.”