Independent financial advisers (IFAs) have just four days to prove they have professional indemnity (PI) cover or risk losing FSA permission to trade.
The FSA issued the warning in a letter to IFAs earlier this week after concerns that some financial advisers have "not tried hard enough" to secure PI cover.
One IFA who received the letter fumed: "I dislike threats. It's absolutely bloody disgusting.
"I want PI cover as I want to protect my business and its clients, but I can't get it the way the FSA wants."
He claimed undewriters from every insurer in the market had rejected him, variously because of the amount of general insurance, split, zero profit share and pension business he did in the past.
He estimated at least 25% of IFAs were in the same situation.
Insurance Times reported that IFAs were finding it almost impossible to find PI cover two weeks ago.
An FSA spokeswoman said the authority was aware of the difficulty getting cover and was consulting insurers and brokers. But she warned the FSA would examine each non-compliance case individually.
"We're generally sympathetic, but if someone's trying to pull a fast one, we'll take action," she said.
"We're looking at it from a consumer protection point of view."
She said the Association of Independent Financial Advisors (AIFA) was conducting a survey to provide the FSA with more information on the situation. An AIFA spokeswoman said there had been a good response to the survey.
"The FSA needs to look at that information, hopefully with a view to changing their rules so firms that are well resourced, but can't get cover aren't seen as breaching regulations," she said.
Leading IFA PI underwriters insisted they were open to approaches for cover.
Dominic Guest of Collegiate, Jonathan Kennett of Chubb and a St Paul International spokesman said they were still taking new business.
Magein, an underwriting agent of Trenwick, did not return Insurance Times' call.
