A safety net for victims of fraud and bad advice was facing a critical battle for survival yesterday as a leading insurer began a High Court challenge not to pay towards the scheme's running costs.
Sun Life argued the levy it was being asked to pay towards the Investors Compensation Scheme was illegal because the company was not liable for the share of the bill demanded.
Charles Flint QC, for the insurer, said: "Sun Life is a strong supporter of the principles behind the ICS and has made substantial contributions to it in the past... But this application raises an issue of principle."
His comments opened the legal battle between Sun Life and its watchdog, the Personal Investment Authority, over whether it must pay towards the pounds 16m levy to the ICS. The company is challenging the PIA at a judicial review in London.
Mr Justice Sedley, the judge hearing the case, was told yesterday the argument centred on whether, as Sun Life claims, members of a regulator are answerable only for defaults incurred by fellow-members.
The PIA, backed by the City's most senior watchdog, the Securities and Investment Board, argues that it has the discretion to widen the net further.
But Mr Flint claimed the PIA, could not be held responsible for previous years' liabilities incurred by companies that never joined it.
The case continues today.