Consultation paper also moots banning conditional risk transfer
The FSA plans to tighten brokers’ client money account audits and ban conditional risk transfer, according to the regulator’s new consultation paper.
The paper, Review of the client money rules for insurance intermediaries, is designed to simplify and improve the current client money rules, protect consumers and cut financial crime.
The FSA wants to become stricter on client money audits because it is concerned that many brokers are lax about holding their own audits.
The current client money rules mean brokers with non-statutory trust accounts containing more than £30,000 in one year must organise an audit the next year, but the FSA does not check these and many eligible brokers do not hold them.
The regulator is now proposing to check all these audits, as well as doing in-depth spot checks.
The FSA’s suggested ban on conditional risk transfer is a solution to brokers’ concerns about some insurers only agreeing to grant risk transfer deals if intermediaries sign up to certain terms.
If brokers breach these conditions, for example by not paying premium to underwriters within a certain period, then insurers can cancel the clients’ insurance.
The paper said: “The grant of risk transfer must be clear and unequivocal.”
The consultation sets out several other suggestions, including:
- Brokers should pay back money to clients within five days if the client asks
- Intermediaries should designate an employee to take responsibility for overseeing client money issues
- Loans from a non-statutory trust accounts should be paid back in a set timeframe
The FSA estimates that a broker holding less than £250,000 in client money will pay a one-off cost of £7,000 to comply with all the new proposals. A broker holding from £250,000 to £10m will pay £48,000, and a broker holding more than £10m will pay £684,000.
The FSA paper also thanked Biba and Liiba for helping the regulator get opinions from brokers and shape the paper.
The consultation closes on 30 November. Click here to read an analysis of the top 10 broker mistakes on client money.
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