The Financial Conduct Authority is considering overhauling the way the Financial Services Compensation Scheme is paid for by changing it from an industry levy to a product-based charge.
A letter from the Financial Conduct Authority to the Treasury written earlier this month reveals the FSCS levy decision is to be made by summer 2017.
Andrew Bailey, chief executive of the Financial Conduct Authority, wrote to Andrew Tyrie, chairman of the Treasury Committee on 11 October, in response to a letter Mr Tyrie had sent on 9 September asking for an update on the information, confirming the work on the funding review is "well underway".
As of the recommendations from the Financial Advice Market Review, the FCA is taking a number of considerations into its review, including changes to FSCS compensation limits and the possibility of risk-based levies related to the products or services a firm offers.
Additionally, the review will be considering the relationship between FSCS funding and professional indemnity insurance and smoothing of firms' levies by, for example, merging certain fund classes.
Currently advice firms' FSCS levies can run to into the high thousands of pounds, and they must pay even if they have never been involved in the activity which has caused a firm's collapse and the claims to fall on the compensation body.
The FCA has been talking to consumer groups, industry associations and stakeholder groups over the summer and a consultation paper on the review will be published in November.
According to the FCA, depending on the outcome of the consultation, the regulator aims to make final rules by the summer of 2017.
As such, the new arrangements would take effect within the 2018-19 year.
The letter from the FCA went on to state it is working with the FSCS, the Prudential Regulation Authority and the Treasury to examine whether there are practical ways to enhance the current funding model by improving affordability for firms without reducing consumer protections.
Earlier this month, Ken Davy, chairman of the Simplybiz Group, has produced a paper which has labelled the current Financial Compensation Services Scheme funding system "so unfair as to be a grotesque injustice".
In it he proposed a contribution of up to 10 per cent of the total levy required to come from the advisory sector.
Mr Bailey's letter also said the regulator is looking at changes to the scope of the FSCS, including the introduction of protection for some consumer credit activities.
Mr Tyrie said in response to the correspondence: “There has been talk of reviewing the FSCS levy since 2001, so this is not before time.
“I’m glad that the funding review is well underway, and that the scope of the review includes issues raised by the Committee, such as the unpredictable nature of the levy.
“It is likely that this will be raised when the Committee sees him next month."