British insurance brokers have welcomed the review of an industry compensation scheme following concerns insurers could be asked to carry the can for failed banks.

UK regulator the Financial Services Authority (FSA) has agreed to review aspects of the Financial Services Compensation Scheme after months of industry lobbying.

The scheme is a compensation fund of last resort for insurance customers. The British Insurance Brokers Association (BIBA) says broker funding and fees for the scheme are unfair and fail to reflect the inherent low risk of general insurance intermediation.

Last month Institute of Insurance Brokers CEO Barbara Bradshaw said brokers and intermediaries who offer short-term protection in return for a set payment should not be compared with the retail investment market, which is long-term and speculative by definition.

BIBA CEO Eric Galbraith welcomed the regulator’s decision to review the scheme, describing as “madness” the fact that brokers might be expected to fund compensation in the event of big banking failures.

The FSA has agreed to review the scheme’s funding model including an evaluation of potential risk-based levies.