The Financial Services Authority has dropped its Big Four auditor and hired RSM Robson Rhodes, setting an example to other large organisations that the mid-tier are as capable as their larger rivals.

The FSA disclosed in its annual report yesterday that it had appointed the mid-tier firm, dropping Deloitte. The FSA told the FT: 'It was not our intention to send a message about firms outside the Big Four, but the message will be received.'

Regulators and mid-tier firms have struggled to try and put across the message that mid-tier firms are as reliable and have the international reach to handle big ticket audits, with Deloitte, PwC, KPMG and Ernst & Young maintaining a stranglehold on the market.

Separately, it has emerged that chief executive of the FSA, John Tiner, and Sir Callum McCarthy, chairman of the City watchdog, earned a combined salary of more than £1m last year.

The FSA annual report for the 12 months to 31 March 2006 revealed that Tiner’s total package increase from £540,242 in 2004/05 to £572,619 in 2005/06, including £68,000 in performance-related bonuses.

Sir Callum McCarthy, picked up £436,142 - up from £382,448 a year ago.

The increase reflects the fact that for three months he was both chairman and chief executive, while Tiner was having treatment for cancer.