'Minded to authorise' letters are being issued to insolvent brokers, claims IIB director general Andrew Paddick.

And outraged brokers throughout the country have joined in the chorus of disbelief. Paul Wadsworth, a director of FR Ball (Insurance) in Abergavenny, said: "This is an incredible piece of news in that it undermines the basic concept of a firm's integrity to transact business."

Paddick said: "The IIB is aware of firms with client account deficits which have received 'minded to authorise' letters based upon commitments to be compliant in the future, which may well not be honoured or be impossible to be honoured due to the extent of such financial problems."

Paddick said that he would not name and shame the firms. "It is confidential information," he added.

The IIB made the claims in a plea to the FSA over broker levies. The IIB said that brokers should not pay levies to the FSCS.

Currently insurers pay a levy to the FSCS to provide cover for policyholders if an insurance company fails.

The FSA is proposing that a similar regime should exist for brokers.

An FSA spokesman declined to comment on the allegations.