The FCA has said it cannot be held responsible for the “unsustainable” increases in Financial Services Compensation Scheme levies and professional indemnity costs felt by advisers.

Speaking at trade body Pimfa’s annual conference today, the watchdog’s director of consumer investments Debbie Gupta said hikes in FSCS bills could not continue, and “we have to bring this down”.

However, she added that there were no easy answers to the problem, and the fault could not entirely be laid at the regulator’s door.

She said: “I know you have strong feelings, and I am not one to shy away from fair criticism. But recognising there is room for improvement is not the same as being responsible for an increase in professional indemnity insurance premiums.

“Stemming the flow of poor advice is absolutely key. Tension exists between what is desirable and achievable; between what is practicable and what is fair. Being blamed for higher PI premiums is like being blamed for higher car insurance premiums due to cars being stolen.”

In January the FSCS revealed its levy is forecast to be £1.04bn in 2021/2022.

This is a 48 per cent increase on the previous year and will lead to higher bills for levy payers.

Gupta challenged advisers and other interested parties to be honest about the trade offs involved in reforming the FSCS, however.

She cited some responses to the watchdog’s call for input on the consumer investments market that closed in December.

These were used as examples to show the complexity of the problem, and respondents wanting contradictory things.

Gupta said: “[The FCA has] been told to introduce a contribution levy for an individual firm based on their specific activity opposed to a general levy. But would that bring down costs? When it comes to PI, we need to ask ourselves hard questions. What would a good market look like? Do increased premiums reduce future liabilities?”

As the appeal of a key ruing on Sipp provider responsibility continues, Gupta said there were positive signs that Sipp providers had improved their processes.

Gupta said: “The situation with some Sipp operators is a key part of the FSCS levy. Have we fixed the problem? We think Sipp operators have fixed it when we consider how they interact with consumer investors.

“We are reasonably confident these problems have been addressed. However, historic liabilities can and will be judged on individual basis by the ombudsman. We are working with Sipp operators to make sure there is coverage for that.”

Delegates also quizzed Gupta about her reflections on the watchdog’s record on the collapse of mini-bond firm London Capital and Finance and the FCA’s new supervisory strategy.

She said: “We had two independent reviews of Connaught and LCF. We are profoundly sorry for the mistakes we made and learn from both reviews. I can tell you our senior teams have had sessions with the authors of both reports. We need to accelerate how we monitor, share and prioritise intelligence of the 60,000 firms we supervise. Data intelligence will be key to make us nimbler.”

The FCA appointed four new managers to help deliver its strategy to be a data driven regulator in February. It also merged two supervision divisions together to make “faster and more effective” decisions.

Gupta said the regulator is in the “last stages of a revamp” and the market “should expect to see a change in our approach very soon”.