The financial services industry will have to pay a total of more  than £1 billion in regulatory fees in the next financial year as a result of the banking crisis, the Financial Services Authority has revealed.

Figures released by the FSA yesterday show that the net cash cost to regulated firms in 2009/10 of responding to the financial chaos of the past year will be £1,071.6 million.

The biggest part of this will be a huge increase in levies to the Financial Services Compensation Scheme which has big loans to the Bank of England and Treasury to service after Bradford & Bingley, Kaupthing Singer and Friedlander and London Scottish Bank were declared in default last year. The surge in levies will largely be borne by banks and building societies and will see the scheme's budget jump from £30.7 million this year to £641.5 million in 2009/10.

The complaints watchdog, the Financial Ombudsman Service, will also increase its general levy on all financial services firms by £0.5 million to £17.7 million. 

But the most significant fee increases for non-banking firms comes from the FSA itself. The City regulator is demanding its annual funding requirement leap by 36.5% to £437.7 million. It justifies the £117 million increase on its need to supervise the financial services industry far more assertively, enhance its IT systems and improve staff recruitment and retention.

Even after the application of discounts - paid for by the fines the regulator has imposed on errant firms in the past year - total FSA fees are set to soar by £96 million, or 30.3%, to £412.4 million.

Although the need for a strong regulatory response to the banking crisis is widely supported, the surge in the FSA's budget has provoked cries that the regulator is becoming a burden on the industry it oversees. As it expands its activities the FSA plans to increase staff numbers to 3,000 from 2,800 and award average pay rises of 3% at a time when other workers in financial services are suffering pay freezes, shortened weeks or redundancy. The timing is also awkward following the resignation this week of deputy FSA chairman James Crosby, former chief executive of HBOS bank.

Chris Cummings, director general of the Association of Independent Financial Advisers, said: 'FSA's budget now stands at almost half a billion pounds - we were hoping for regulatory restraint but instead have seen proposals that endanger the survival of good firms. In some instances the regulatory fee rises by as much as 169%. At a time when the government is trying to help small firms it is clear that this goes against that policy.'