The adviser trade body has called on the City watchdog to "carefully consider" whether its regime is fit for purpose as the compensation levy paid by the industry to cover rogue and defunct firms rose by £87m.
This morning (January 16) the lifeboat scheme predicted it would increase the levy on the industry by almost 16 per cent year-on-year, landing a total bill of £635m on advisers and providers for 2020-21.
But Pimfa, the UK's financial adviser trade body, said the all-time high costs falling on its member firms were "totally unsustainable" and "ultimately borne" by firms who did not give rise to consumer detriment.
Liz Field, Pimfa's chief executive, said: "The year-on-year excessive level of compensation cost is such that we call upon the Financial Conduct Authority board to carefully consider whether its existing supervisory regime is fit for purpose."
She also urged HM Treasury to fundamentally review the purpose of the levy and its impact on good firms, arguing the system was "not working" and "fundamentally impacted" a firm's ability to invest in their business and enhance services for clients.
Advisers, who are set to see their individual levy rise by 13 per cent, have branded the increase "galling" and argued the magnitude of the cost showed UK financial services regulation was in need of urgent reform.
Scott Gallacher, chartered financial planner at Rowley Turton, said: “It is somewhat galling when good advisers such as ourselves, who have entirely avoided these suspect schemes, have to then pay for the mistakes of others by way of higher FSCS levies.
“The vast majority of good advisers have seen this coming for a while and I suppose we should be thankful that the regulations seem to be catching up.”
Martin Bamford, director of Client Education at Informed Choice, said the levy “made [his] blood boil”. He said: “The FCA should not be allowed to let misselling happen on such a massive scale with regulated firms picking up the pieces.”
Paul Stocks, director at Dobson & Hodge, agreed. He said: “It continues to be frustrating that the cost of giving regulated advice faces ever increasing pressures as a result of regulatory levies which, in turn, seem to reflect issues arising from unregulated investments which have either failed or appear to be fraudulent from the outset.”
Darren Cooke, chartered financial planner at Red Circle Financial Planning, said he was "disappointed and angry" but "not surprised" at the levy increase, branding the FSCS funding system "broken".
He said: "The good guys pay for the bad guys. Even when the sinners are caught and fined, the money doesn't go into the pot to pay for their crimes."
The FSCS put the increased levy down to a rise in the number of self-invested personal pension claims, saying Sipp firms had behaved in a way which gave rise to a civil liability to investors.
There have been nine Sipp operator failures since January 2018 and the expected annual cost for 2020-21 is £209m. Before 2018 there had been no such failures.