The Wealth Management Association has condemned the Financial Conduct Authority (FCA)'s business plan, claiming the regulator is overlooking FSCS problems in its annual review.
The trade body called on the FCA to 'reconsider the overall fairness' of the Financial Services Compensation Scheme (FSCS)’s funding model to 'ensure firms undertaking promotional activities have to contribute their fair share to the FSCS'.
This comes as the FCA reported investment firms could end up paying more than £30 million extra into the FSCS over the next two years, solely to deal with claims arising from the failure of product promoter Catalyst Investment Group.
The £30 million 'interim payment' expected to be levied on investment firms follows the 'failure' of Catalyst, which was 'not required to pay anything' into the FSCS for its promotional activities, the WMA pointed out.
WMA chief executive Dr Tim May (pictured) said: 'The FCA’s business plan makes hardly any mention of its responsibility to manage the Financial Services Compensation Scheme.
'The funding model for this essential scheme really does need urgent review. Promoters of financial products do not have to pay into the scheme: in instances such as the failure of Catalyst Investment Group, that leaves our members and other advisers paying an extra £30million into the scheme to make up for the shortfall.
'And to add insult to injustice, it now appears that IFAs in Malta can also claim off the UK compensation scheme in relation to the activities of Catalyst.'
While May insisted the WMA agrees with the principle that the investment community funds a compensation scheme to protect investors from industry failures, he said the principle had to 'be fair'.
'It is time that product providers and promoters take on their share of this funding burden. We now need the FCA to investigate this problem urgently.'
'The recent failure of Catalyst Investment Group is the most striking example of this weakness in the FSCS funding model.'
The financial watchdog published its business plan on 31 March, highlighting a number of issues it intended to target this year.
This included launching an investigation into whether there were conflicts of interest when wealth managers and private banks used in-house funds.