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The FSA is investigating the use of certain client money accounts in Scotland amid fears that customer money is not adequately protected.
Insurance Times has learned that the regulator is looking into whether non-statutory trust accounts used by Scottish brokers have been properly created under Scottish law.
The move comes as brokers and Biba expressed concern that Scottish intermediaries have been unable to set up non-statutory trust accounts properly because insurers had failed to recognise the different legal requirements in the region.
But insurers claimed they had addressed the problem through changes to their terms of business agreements.
If the trust accounts are not properly constituted then client money may not be protected if a broker becomes insolvent.
Simon Bolam, principal of EH Ransom and a member of the FSA's practitioner panel, said: "I wrote to insurers to get the agreement in place but got stonewalled. They say they are looking at it but nothing happens. I believe no broker in Scotland with a non-statutory trust is compliant. I cannot get insurers to recognise the problem."
The English concept of trust does not exist under Scottish law, which uses the concept of agency.
Scottish brokers need to change to their agency terms with each insurer they deal with to create the equivalent of a non-statutory trust account. This differs from the position in England which requires only an exchange of letters with the bank and the execution of a trust deed.
Steve White, Biba training and compliance said: "Anecdotal evidence from brokers is that insurers don't know what to do. By and large insurers are struggling to deal with it."
According to the FSA, 10% of brokers holding client money in Scotland use non-statutory trusts.
Bolam estimated 50 brokers used non-statutory trust accounts.
Royal & SunAlliance and AXA, however, said they had updated their terms of business agreements to reflect the position in Scotland.
Corporate strategy and development director Tesh Patel: "We have had a number of enquiries. When brokers have asked us we have attached an amendment to the Toba. New agency agreements will also contain the term."
But Biba said it would seek advice from the FSA on whether the changes made by insurers were sufficient.
An FSA spokesman said: "We will take matters forward with relevant parties to determine what further action will be needed."
Their agency terms with each insurer they deal with to create the equivalent of a non-statutory trust account. In England only an exchange of letters with the bank and the execution of a trust deed is required.
Steve White, Biba training and compliance manager, said: "Anecdotal evidence from brokers is that insurers don't know what to do. By and large insurers are struggling to deal with it."
According to the FSA, 10% of brokers holding client money in Scotland use non-statutory trusts.
Royal & SunAlliance and AXA said they had updated their terms of business agreements to reflect the position in Scotland.
But Biba said it would seek advice from the FSA on whether the changes made by insurers were sufficient.
An FSA spokesman said: "We will take matters forward with relevant parties to determine if further action is needed."
