The FSA wants insurers to regulate loss adjusters and claims handlers, according to FSA sources.
It is understood that the FSA says the loss adjusting and claims management industry is too complex and will be too taxing on its time to regulate.
"The FSA has said it understands insurers, so is happy to regulate them.
"But it doesn't understand the loss adjusting market and doesn't have the stomach or the time to regulate it.
"So it will rely on insurers to do the job for it," said the source.
This news came in the week that Cila issued its response to the FSA's CP160.
Cila said in its response that its primary concern is that the industry will be "indirectly regulated" which will lead to a "myriad of different interpretations" of the standards its members will have to comply with to become FSA-compliant.
Cila members would prefer a clear set of guidelines be introduced for all those firms and companies involved with claims administration and handling.
Cila concluded that though CP160's proposals were "fundamentally sound" there was an overall concern.
Outgoing Cila president George Moss said: "The concern is that the scope for interpretation by a large number of insurers charged with indirect regulation of our activities may lead to unnecessary confusion and cost burden on our members."