The Personal Investment Management & Financial Advice Association's (PIMFA) latest report FCA Supervision - fit for purpose?, published this Monday, slammed the regulator for not properly supervising some firms linked to FSCS claims.
"PIMFA recognises that the FSCS provides a valuable safety net for retail clients and enhances consumer confidence when engaging with financial services firms. Member firms are of the view that a number of material claims on FSCS are attributable to an ongoing failure of FCA's supervisory regime."
While PIMFA said it did not advocate a no-default supervisory regime, it cited "considerable concern" about the effectiveness of the regulator's approach to supervision.
Member firms are of the view that a number of material claims on FSCS are attributable to an ongoing failure of FCA's supervisory regime"
"In part, this is driven by the material costs that firms face as a result of massive year-on-year claims on FSCS, perceived failures of supervision and recent feedback from the Complaints Commissioner which highlighted supervisory failings in respect of specific complaints."
PIMFA's paper said the high level of compensation costs, coupled in many cases with high professional indemnity (PI) insurance, is "materially impacting on firms' cost structures".
PIMFA said these high costs have resulted in a widening of the advice gap, making is increasingly difficult "for consumers of moderate means to obtain advice".
The trade body also noted a reduction in competition due to "barriers to entry arising from the additional capital required to cover and ever-increasing initial cost base".
PIMFA also said these cost issues pressured many smaller firms to consolidate to reduce their overheads as well as decreased firms' abilities to invest in their businesses and enhance their service offerings to clients.
The trade body added most of its members believed the FCA did not properly engage with them, which influenced their view on assessing the effectiveness of the regulator's supervisory regime.
"Firms are unwilling to provide feedback directly to FCA where they believe that supervisory engagement is unsatisfactory," PIMFA continued.
PIMFA also said that the FCA was not doing enough to highlight and learn from major regulatory failures.
The FCA has been contacted for comment.
A version of this article was first published by Professional Adviser