The Association of British Insurers has said the Financial Conduct Authority's plans to reform the way the Financial Services Compensation Scheme is funded "defy logic".
Under the FCA's proposals for reforming how the FSCS is funded, providers will pay more towards the levy to help lower the bill for advisers.
Calculations conducted by the FCA show providers would have paid up to £50m more a year towards the levy over the past five years under the proposals.
But providers themselves have criticised this move and said those responsible for failures should be the ones to pay.
Andrew Carpenter, policy adviser for financial regulation and taxation at the ABI, said: "The ABI continues to resist strongly the FCA's proposal that insurers pay for adviser failures.
"In our response this week to the FCA's latest consultation on FSCS funding, we call instead for the FCA to do more to reduce the incidence of these failures.
"The FCA's own recent research shows how common unsuitable advice is, and advice which the FCA is not sure is suitable. We support the FCA giving priority to enhancing its monitoring and supervision of advisers.
"The FCA cites product governance rules in support of its proposal. However, the FSCS's own data shows that 80 per cent of claims it has met recently have related to unregulated investments, and yet insurers cannot issue unregulated products.
"It therefore defies logic to suggest that insurers foot 25 per cent of the FSCS bill.
"The FCA needs to maintain the right balance. The fundamental principle of FSCS funding is that those responsible for the failures are the ones who pay."
At the moment providers only pay when if the compensation is directly related to their or their cohort's business practices, or if the FSCS's funding for another subclass has exceeded its limit.
But the FCA is now proposing that they should pay from the first pound.
With regards to funding classes, the FCA has said it is looking at reducing their number to reduce the volatility of the levy.
The FCA's proposals, which were published in October, also include forcing advisers to put money aside for the benefit of the FSCS.
The FCA has said it is considering two ideas: either requiring firms with professional indemnity insurance exclusions to hold an amount of capital in trust for the benefit of the FSCS or requiring firms to take out a surety bond to cover claims in the event of their failure.
damian.fantato@ft.com
