A leading compliance expert has claimed that the FSA's proposed rules on co-mingling will cause small brokers to go bust and will fail to safeguard client money.
FSA Solutions director Alex Peterkin has written to the FSA warning of the "serious adverse implications" of the broker rules.
She argued that the rules would require brokers to fund any deficits when reconciling their accounts with insurers.
This would lead to some smaller brokers going bust, as they would not have the funds available to meet the deficit, she said.
PricewaterhouseCoopers has also submitted a response to the regulator raising concerns that the proposed rules could be in breach of common law.
If so, the trust account would not protect client money from creditors, such as banks and the Inland Revenue, if challenged in court.
Deloitte is also understood to share some of these concerns, but has not made a formal response.
Despite such serious concerns, the FSA is not expected to change the rules when it publishes the final version later this year.
Peterkin said: "The rules were put together with omissions because the FSA didn't have enough time [to re-consult]. It is now pushing them through and will not have time to make changes."
An FSA spokesman denied that it did not have time to produce a workable set of rules.
"We can keep the transitional provisions [which allowed co-mingling for the first year of regulation] as long as needed, until we get rules that meet the industry's needs."