UK brokers have reacted angrily to new proposals by the Financial Services Authority (FSA) to change the funding of the Financial Services Compensation Scheme, which pays customers for losses when a regulated financial firm cannot meet its obligations.

The FSA says it could split funding into two classes – one covering deposit-takers and insurance providers and another dealing with funds management businesses.

But the British Insurance Brokers’ Association (BIBA) says the plan would allow the regulator to increase the levy it can impose on insurance intermediaries.

BIBA Head of Compliance Steve White says the financial cap on the broker’s sub-class is being raised by 50% to £300 million ($449.7 million).

Mr White says he is also concerned about the proposed creation of a “retail pool” which could see his members having to contribute to levies for corporate failures outside the insurance intermediary sector.

“BIBA together with our lawyers and consultants remain engaged in helping us find a more equitable long-term solution for insurance brokers,” BIBA CEO Eric Galbraith said. “It will not be easy but all options must be considered.”

In recent years compensation paid out by the FCSC on insurance has risen from £2 million ($2.99 million) to £69.5 million ($104.1 million) largely as a result of problems with credit insurance, which most brokers do not handle.