Product providers will have to cough up more to fund the FSCS under plans unveiled this morning.

Following repeated calls from the advice sector of unfairness in the system, the FCA acknowledged that “product providers and distributors do not share the burden of FSCS levies equally”.

The regulator has made this a central point in its review document, published today.

However, it ruled out a product levy.

The FCA stated: “Bearing in mind firms’ product governance responsibilities and the burden that has fallen on intermediary firms in recent years in funding the FSCS, we believe it is appropriate that providers pay additional contributions.

“Currently, authorised product providers only contribute to the costs of failed intermediaries from levies they pay for their own intermediation activities within the intermediation funding classes, and also to any costs incurred if the retail pool is triggered.”

The document stated: “We are looking at introducing product provider contributions towards the costs of claims involving intermediary firm failures, reflecting the wider responsibilities of product providers in the process.

“Firms that provide products will also contribute to intermediation classes for the intermediation activities that they themselves conduct.”

The FCA said it considered a product levy carefully - but will not proceed with that idea.

It stated: "We understand the desire to increase the role of product providers and create a clearer link between products manufactured and FSCS claims, even where these products are advised on or distributed by third-parties.

"Although we are not proposing to introduce an actual product levy, we are considering whether we could more clearly link product risk to levies and whether product providers should contribute to claims involving intermediaries."

The proposed extra contributions could come from:

• General insurers
• Life insurers
• Home finance providers and administrators
• Investment providers
• Deposit acceptors

The report stated: “In each case, we will look at including contributions to intermediation classes from the provider classes. In contrast to the current arrangements, product providers could potentially contribute from the first pound of any claim facing intermediaries up to relevant limits.

“Of course, it remains important to ensure that product providers’ contributions to the FSCS are both affordable and sustainable, but we believe this is compatible with our proposals. Introducing product provider contributions would ensure that the FSCS has a robust funding model, with sustainable classes that provide sufficient funding for compensation.”

The consultation asks this question: Do you agree in principle that product providers should contribute towards FSCS funding relating to claims caused by intermediary defaults?

The rules for the FSCS were last reviewed in March 2013 when the Financial Services Authority concluded a review of the scheme’s funding and published final rules. Since then, the scale and impact of FSCS levies has risen sharply for some firms.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “We want to have a full debate with all interested stakeholders and this paper sets out the range of fundamental issues we want to discuss.”

The FCA asked for responses to its Consultation Paper by 31 March 2017 before publishing final rules and a further consultation on proposed rule changes in Autumn 2017.