Trade organisations and the Treasury Select Committee (TSC) have demanded the Financial Services Authority (FSA) complete its review and make changes to FSCS funding by April 2012.
However, in its response today, the government said it will not force the FSA to speed up its plans.
Pressure has mounted on the FSA to prioritise an investigation into FSCS funding in the past few weeks.
The Association of IFAs (AIFA), the Investment Managers Association (IMA) and the British Insurance Brokers Association (BIBA) all demanded changes to FSCS funding in June.
The FSA was originally meant to publish a consultation paper on the issue in late 2010, but the consultation was postponed.
Today the government stood by the FSA’s suspension of the review.
“[The FSA] will proceed to a formal consultation and cost benefit analysis once discussions on European directives affecting compensation arrangements have been concluded,” the government response said.
It said the review cannot go ahead before the government has decided where the FSCS will sit within the new financial regulatory structure.
The government also warned funding for the FSCS must not dry up during an overhaul.
“It is essential the FSCS is able to pay out compensation to all eligible policyholders. Without certainty of payout, consumer protection is substantially weakened,” the response said.
“It is therefore vital that the FSCS is able to raise resources in a range of circumstances to compensate consumers effectively.”
