The FSA has snubbed Biba's attempts to overturn disclosure rules that destroy the concept of a level playing field between brokers and direct writers.
Following the introduction of regulation in January 2005, both direct writers and brokers had the same disclosure requirements.
But, last December, the FSA introduced an amendment to disclosure rules, which meant direct writers can give out less information and regulatory information than brokers. Potentially, this means a quicker and more straightforward sale for directs.
According to an FSA spokesman: "When regulation was introduced, we decided to 'gold plate' the Insurance Mediation Directive. At the time, we decided to extend the same disclosure rules to direct insurers, but we later felt it was so marginal in terms of benefit that we changed them."
Steve White, Biba's head of compliance and training, said: "The FSA was meant to bring in higher standards, but this is not good news for consumers. The decision is also in conflict with the regulator's statutory objectives."
He said Biba would keep "chipping away" to try to make the regulator rethink the decision.
Biba has commissioned consumer research to show a lack of consumer awareness of brokers and direct writers. Half of the respondents in its survey either did not know, or were confused, about the role of a broker and failed to understand the benefits of receiving a broker's advice.
Despite being presented with the research, the FSA insists that consumers do understand the difference between direct writers and brokers.
The UK's largest broker the AA is also angry about the change. PR manager Ian Crowder said: "The FSA has changed the competitiveness between different channels and telephone sales have been hardest hit. There is no logic to this decision and it does not promote public understanding - in fact, it has the contrary effect."
An FSA spokesman said: "We believe among the public there is less uncertainty about the status of insurers. But, with brokers, there is less clarity about those with an advisory role and that is why there are more disclosure requirements."
He added there has been little reaction to the watering down of disclosure rules from consumer groups. "This is all water under the bridge now. We can never say never, but my message is that we are not minded to reopen this issue."