The FSA is to begin a large-scale review of brokers' compliance with the client money rules after pilot studies found "worrying" levels of non-compliance.

The regulator will this week publish the results of two thematic studies conducted last year into the handling of client money by wholesale and retail brokers. It will also publish a simplified guide to the client money rules.

A spokesman for the FSA said the reviews had revealed "a worrying level of non-compliance by both wholesale and retail intermediaries, which potentially puts consumers at risk of financial loss". Problems included:

  • Not doing a proper client money calculation, or where doing one, performing it incorrectly

  • Failing to keep track of money held by third parties in a broking ‘chain'

  • Not observing trust law

  • Failing to inform clients of how money is being held.

    • The spokesman said the FSA would now expand its study, looking at 200 brokers across the wholesale and retail sectors. "This will target particular areas of the UK to maximise the local impact," he said.

    Biba regulation and compliance manager Steve White said: "There is a clear level of misunderstanding about the rules. The onus is on firms to read the new guidance and apply it. The FSA's patience will only last so long."

    The FSA said a "small number" of wholesale firms had been referred to enforcement action, although no retail firms had been referred at this time.

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