The Association of Mortgage Intermediaries chief executive said mortgage intermediaries will be on the hook while mortgage providers will no longer have to bear potential costs of FSCS claims.
Sinclair said: "If there had been any doubt left on who is accountable for what is sold, it finally evaporated today.
"When anyone holding an authorisation to provide advice recommends a product then not only they but the rest of the intermediary community are on the hook both for that product and for that advice.
"In deciding that the product is appropriate and suitable, liability is then established. The loss of shared producer/seller liability is a fundamental shift in policy."
Sinclair's comments come in response to the FSA's decision to remove the home finance provision class from the proposed funding structure for the FSCS.
Currently if the £60m home finance intermediation threshold for FSCS claims is breached home finance providers would step in to compensate borrowers.
Under the proposed structure the home finance intermediation threshold has been lowered to £40m based on a firm affordability assessment undertaken by Deloitte on behalf of the FSA.
If the proposed £40m mortgage intermediary threshold is breached home finance providers will no longer have to put their hands in their pockets. Instead a Financial Conduct Authority "retail pool" with a maximum capacity of £790m will be triggered and paid for by the other classes in the FCA division.
The FSA said: "The regulated activities that form the legal basis of the Home Finance Provision class are not subject to FSCS protection. They were nevertheless grouped together into a FSCS funding class at the time the current FSCS’ funding model was introduced. The sole purpose of the class was to provide an additional source of funding for home finance intermediation claims due to the ‘mutual financial interest’ it shared with the Home Finance Intermediation sub-class.
"We propose that this class should be removed from the funding structure. This is because the activities of the class do not themselves cause a potential liability to the FSCS and direct explicit cross-subsidy between ‘classes’ within a ‘broad class’ will no longer feature in the FSCS funding model as a consequence of our proposals concerning cross-subsidy."
Sheila Nicoll, director of conduct policy at the FSA, said: “Under the existing arrangements the mortgage intermediary sector is liable for claims up to £60m but the proposals are to lower that collective responsibility to £40m.
“Lenders will be included in this class for their intermediated mortgage activity. There haven’t been significant claims in this area as I understand it – the peak payout has been £216,000 which is very small compared with other classes. But the decision to lower the threshold is based on firms' affordability.”
But Sinclair said for mortgage intermediaries the drop in the maximum levy within their own class is "defeated by the increase in the insurance intermediation cap".
General insurance brokers may see their liability cap soar from £195m to £300m under the proposals which Nicoll said had nothing to do with anticipated or past claims relating to mis-sold payment protection insurance.
Steve White, head of compliance and training at BIBA, said: "We are very concerned that the financial cap on our sub-class is being raised by 50% to £300m. We are also very concerned about the suggested creation of the ‘retail pool’ which could have serious consequences for our members if significant failures occur elsewhere in the funding scheme.”
And Sinclair added: "The potential to have to meet other sectors' excesses also brings increased regulatory risks to already fragile firms. The current large FSCS bills show little chance of declining in the near term.
"AMI will be discussing these changes with members and providing detailed feedback on this paper and 25 October will be a critical deadline this year.”
The FSA estimates that there are just over 3,900 active firms in the home finance intermediation sub-class including large financial institutions and IFAs but did not confirm whether the cost per individual firm would rise.
She said: “We can all get very fussed about who pays what and I think in this whole thing the important thing to remember is that we need a well funded compensation scheme.
“That’s in the interests of consumers so they can have confidence in financial services and that benefits firms as well.”
Sinclair said: "We support a scheme that provides comfort to consumers – all we need to match that is to have confidence in the products that are manufactured by lenders and insurers who are now outside our “net”. As well as confidence in the PRA and FCA supervisors to do the job they have failed to do so far."
