The Wealth Management Association has called on the Financial Conduct Authority to reconsider the Financial Services Compensation Scheme's funding model after it emerged that UK firms faced paying more than £47 million next year to deal with a firm that never paid a penny into the scheme.

The Wealth Management Association has called on the Financial Conduct Authority to reconsider the Financial Services Compensation Scheme's funding model after it emerged that UK firms faced paying more than £47 million ($78.6 million) next year to deal with a firm that never paid a penny into the scheme.

The WMA said in a statement that more than one-third of the £112 million contribution from investment firms to the FSCS for the 2014/15 levy will be spent in compensation to consumers affected by the failure of Catalyst Investment Group, including investors outside the UK.

This follows the announcement by the FSCS yesterday that it had reduced the annual levy financial services firms were quoted in January by £37 million. For more on this story, click here.

“The claims arising from Catalyst are due to the fact they promoted unregulated products: the promotional material they produced is reported to be unclear, unfair and misleading. So consequently consumers have a claim against Catalyst. In fact even consumers in Malta can claim off the UK compensation scheme in relation to the activities of Catalyst,” said WMA director of regulation Ian Cornwall.

The WMA believes this situation contradicts the FCA’s design principles for the FSCS and called on the FCA to reconsider the overall fairness of the scheme’s funding model to ensure firms undertaking promotional activities have to contribute their fair share.

“The FCA fails to take into account that firms undertaking promotional activity make no contribution to the FSCS pot. So we’re now in a position this year that a substantial chunk of the compensation claims against the investment intermediation class will be against Catalyst, which will not have paid one penny into the compensation scheme, and the FCA were aware of this defect in the funding model at the time they approved the rules,” said Cornwall.