The adviser trade body has called for regulatory fines imposed by the City watchdog to partially offset the increasingly growing levy raised by the industry's compensation body.
After months of campaigning for the funding of the Financial Services Compensation Scheme to be reformed, the Personal Investment Management & Financial Advice association has suggested a temporary solution be agreed until a long-term solution to the levy is found.
The trade body proposed an interim measure which would see fines imposed on regulated firms by the Financial Conduct Authority contributed to funding the lifeboat compensation scheme rather than being paid to the exchequer.
Pimfa said this would limit the FSCS levy increases seen over recent years to a "more manageable level" or potentially reverse the upward trajectory altogether.
Tim Fassam, director of government relations and policy at Pimfa, said: "Recent years have shown the harm that can be done to consumers when the market goes wrong, with well-run firms picking up the bill via the FSCS.
"The FCA have shown they agree with Pimfa on many of the areas that require action, but our members have been raising concerns for years and cannot be expected to wait years for action.
"Having the polluter pay via FCA fines ensures a quick reduction that ensures industry support for the much-needed longer-term reform."
In 2012 the government changed the rules governing penalties imposed by the FCA, so revenue from fines against banks and other financial services firms no longer went to the industry but to the Treasury instead.
Last month Nikhil Rathi, chief executive of the FCA, told MPs it would take "two or three years" to abate the industry levy and fix the current professional indemnity market, which he admitted wasn't "functioning particularly well" for advisers.
The timeframe for improvement was also echoed by FCA chairman Charles Randell who said it would take "several years" to reduce the cost of the FSCS levy which has plagued IFAs in recent years.
Pimfa also called for an increase in efforts to recover funds from failed firms or schemes, to ensure action is taken in all cases where the potential levy payment for firms in the same class could be reduced.
rachel.mortimer@ft.com
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