Deposit holders must make money safe

All regulated investment firms and insurance intermediaries holding monies on behalf of clients must take necessary steps to ensure that money they deposit is safe if the bank were to fail, a leading business adviser has warned.

According to BDO Stoy Hayward LLP, under the FSA's Principle 10 all regulated firms must arrange adequate protection for client assets when it is responsible for them. Such examples can include brokers holding client money when buying or selling shares or insurance brokers who collect an insurance premium from consumers.

Fiona Raistrick, head of the financial services regulatory practice for BDO Stoy Hayward, said: "In these uncertain economic times, FSA regulated firms, such as investment companies and insurance intermediaries, will have a lot to worry about, however, the holding of client monies should not be allowed to slip down the agenda and be forgotten about.

"If a bank was to fail, it is essential that consumers have the peace of mind that their money is safe, and regulated firms must ensure they exercise due skill, care and diligence when it comes to the handling of client monies"

The FSA has not issued particular guidance as to how investment and insurance firms should negotiate this uncharted territory however, Ms Raistrick said Principle 10 clearly states its position.

She added: "It is anticipated the FSA will not look kindly on firms who do not make attempts to protect client money, particularly as so many consumers look set to lose money with the collapse of the Icelandic banking system.

"Given the increase in fines seen over the last three to six months, any company who does not make strong efforts to protect their clients could expect to face hefty fines from the FSA".

A spokesman for the FSA said this should not be an issue for firms so long as they maintained a clear segregation between client and business money.

He said: "There is a client asset source book which goes into great detail on this matter and I would urge anyone who is confused on this issue to consult it for more clarification.

"However I would like to add that no depositor has lost money to date in the recent market turmoil so this point may not be relevant."