FSA To Examine Handling Of Client Money By Insurers

by Robin Pilgrim, LawAndTax-News.com, London

05 May 2006

The UK's Financial Services Authority announced on Thursday that it will undertake a large scale review later this year into the handling of client money by general insurance intermediaries.

According to the FSA:

"This decision follows pilot work which showed a worrying level of failure by both wholesale and retail intermediaries to comply with FSA rules on client money potentially putting consumers at risk of financial loss. Adequate protection for clients' assets is a key requirement for firms under the FSA's Principles for Businesses."

The review will involve visits to wholesale and retail firms, targeted to particular areas of the UK to maximise local impact. The FSA wants to see a significant improvement in how firms are complying with client money rules.

• Common problems identified by the pilot studies included failure by firms to:
• Perform a client money calculation;
• Keep track of money held at third parties;
• Observe trust law (thereby potentially jeopardising trust account status); and
• Inform customers of how their money is being handled.

On the basis of these findings, a number of firms have already been referred to enforcement for potential breaches of client money rules and inability or unwillingness to take corrective action.

The pilot studies also showed that many smaller retail firms were willing to comply with the client money rules but some did not fully understand all the rules, particularly regarding client money calculation.

Andrew Honey, Head of Insurance Firms in the FSA's Small Firms Division, announced that:

"Our pilot review at the end of last year showed the same problems in the retail market as we saw before with wholesale firms. Ensuring that there is adequate protection of customers' money held by authorised firms is a major priority for the FSA and should be for firms too. For those firms which are trying to be compliant but have had difficulties, the new Guide to client money should help them in future."

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