FSA highlights insurance brokers’ client money failings
Regulator finds poor compliance resulting from lack of understanding of client asset sourcebook rules.
The Financial Services Authority has cited insurance intermediaries’ “poor understanding” of client asset sourcebook (Cass) 5 rules regarding client money in a new consultation paper proposing an easier-to-understand rule book.
The paper, which represents the culmination of a review of client money practices among insurance intermediaries, proposes improving the Cass 5 rules to produce a rule book which is “clear, simple and easy to apply and to change inappropriate practices”.
In particular, the FSA said the sourcebook needed to be updated so that it better clarifies and explains the Cass 5 regime for firms and insurers.
The regulator said that it had identified several key concerns following its review, including: poor understanding of the rules; poor compliance with Cass 5; and missing or incomplete documentation such as trust deeds and trust letters.
More specifically, the FSA said it found examples of inappropriate controls around the use of the non-statutory trust, ineffective risk transfer documentation, incorrect application of pooling rules; and infrequent client money calculations.
It also said it found evidence of failings in relation to controls where client money is held by third parties and examples of client money held as designated investments.
Topics covered in the paper include simplifying the distribution and transfer of client money, improving the effectiveness of segregation and use of risk transfer, improving record keeping and reporting and improved diversification of client money.
Also reviewed are the requirements on segregation and placement of client money.
Comments on the paper are welcome by 30 November 2012.