Tenet has criticised the funding model for the Financial Services Compensation Scheme (FSCS), in its response to the FSA’s CP12/16 consultation paper on future FSCS funding.

It warned that the current FSCS funding strategy is unsustainable and not only threatens to cripple many adviser firms but could ultimately undermine the regulatory and compensation scheme foundations, leading to significant consumer detriment.

Within the document submitted, the group stated it was rather disappointing that after three years of thinking about it, a better and fairer solution had not been offered, especially when many IFAs are expecting reduced levels of income in the post-RDR environment.

The company underlined that the impact of increasing costs on a reducing industry population will potentially reach a crisis point if not addressed, which is likely to be further compounded by the increase in claims management companies.

“Although we understand that the FSA has considered alternative funding previously, we have strongly recommended that this is revisited and have offered a potential solution through the introduction of a regulatory & compensation scheme premium,” said Tenet’s group distribution and development director, Keith Richards.

“This would provide an additional – as opposed to an alternative – funding solution to pay for the rising FSCS and regulatory costs.

“Advisers fully accept the principle of levies at a fair and sensible level and in addition bear the cost of increasing operational compliance and PII to protect clients, but the current funding strategy is unreasonable and unsustainable.

“However, a levy on the product or investment value would help moderate the current volatility and the challenge this represents to IFA businesses.”

On the issue of claims management companies, Tenet has particular concerns following anecdotal evidence from advisers that even clients who consider themselves as honest can be persuaded to make unsubstantiated claims for products they are not sure they purchased, on the basis that banks can’t access past documentation or that it is easier and less costly for them to pay than to dispute a claim.

Richards added: “We are calling for the FSA to conduct a more detailed study exploring the options for, and impact of, a product levy and would welcome the opportunity to work with the regulator on this.”