Tenet has criticised the FCA’s refusal to consider introducing a product-based premium as a means of funding the Financial Services Compensation Scheme.

Its chief executive, Martin Greenwood, said: “Their apparent dismissal of the proposal, on the grounds that it would require the drafting of new legislation, doesn’t make any sense.

“How can that possibly be cited as an excuse for not reforming something so urgently in need of improvement?

“The current system is fundamentally flawed, so if a much fairer, feasible alternative is available, it should be investigated. The end surely outweighs the means?

“Hiding behind the need for parliamentary intervention is deliberately evading the issue. Costs are constantly increasing and in a reducing industry, the impact on small and large firms is becoming untenable. Even more frustratingly, the levy is currently being paid by those who did not cause the problem. The ‘innocent’ are paying for the ‘guilty’.”

Greenwood said that other suggestions that have been mooted will not work: “The promise to look at ‘smoothing out’ completely fails to address the underlying problem, he said.

“Meanwhile, a risk-based solution would simply result in people trying to manoeuvre around any obstacles and ironically encourage consumers to be reckless – in the knowledge that if everything backfires, they’ll simply get their money back.”

He proposes the FSCS should be funded by a premium charged on products and investments, which would be more rational and transparent than advisers continually having to factor on-going increases into their fee structures.

“Similar schemes work perfectly well in other sectors, such as the Motor Insurance Bureau and the Pension Protection Fund,” he said. “Adopting one in financial services would fund the compensation scheme and support education initiatives aimed directly at the consumer.”