A company with a non-statutory client money account or with money over £30,000 held in a statutory account at any time during the period must have an audit of the client`s money carried out. It is important that the Company exercise due diligence to assess whether the auditor has adequate experience and expertise to properly review and test clients` financial arrangements. The transfer of risk requires a written agreement. This is usually displayed in an insurer/wholesaler/MGA TOBA. The FCA has highlighted CASS 5.5.9R and CASS 5.5.10R as well as the main exclusions where the Company may hold money other than the client`s money in its client bank account. These main exclusions are: Q: How do I remove my obligation to hold client funds? Peter is a Regional Business Manager at RWA and supports clients with their regulatory requirements. He has also helped several new startups by overseeing their approval process. Q: I don`t hold clients` money, how do I fill out a zero return? Mixing – When companies hold money as a representative of an insurer and some or all of the risk transfer money is mixed with customer funds, an agreement must be in place with an insurer. If some (or none) of a company`s risk transfer money is mixed with customer funds, the company should also operate an insurer`s escrow account to hold risk transfer money. If companies want to withdraw excess money from customers more frequently, they can perform a calculation of customers` money more often than every 25 business days. A: A company that receives or holds money for its MiFID business (or a specific investment activity that is not a MiFID business) under CASS 7 and that also holds money in connection with or in connection with its insurance distribution business under CASS 5 may make an election under CASS 7.10.3R to comply with CASS 7 for all money it receives. including funds it receives in the course of or in connection with its insurance distribution activities. On 2 July 2021, the Financial Conduct Authority (“FCA”) published its “Dear CEO Letter”, in which it addresses the key issues identified during the review of client remuneration contracts of general insurance intermediaries and the continuing expectations for adequate protection of client funds.
The FCA reviewed the remuneration contracts of clients of general insurance intermediaries on the basis of the results collected in the financial resilience surveys; These reviews revealed common deficiencies that the regulator believes could indicate more widespread non-compliance within the industry. For example, an insurance policy is a method of transferring risk. The purchase of derivative contracts is a method of risk transfer. For more information, see the Client Funds Guide for General Insurance Intermediaries. The guide provides information on the establishment and management of accounts receivable, audit and reporting requirements, and advice for companies with designated representatives. Basically, there are two ways for brokers to collect and distribute the funds collected by the client: the transfer of risk is often confused with the transfer of risk. To repeat: The transfer of risk is a transfer of risk (“transfer”) to a third party. On the other hand, risk transfer involves changing (“shifting”) the distribution of risky outcomes rather than transferring them to third parties. This is by no means a comprehensive guide to client funds, but rather a reminder of how important it is for you to get it right. The letter highlights widespread failures in the industry to make proper calculations of customer money, with more than half of the companies evaluated failing to align these calculations with the regulator`s rules and expectations. A: The calculation of the customer`s money is done as often as necessary. However, this must be done at least every 25 working days.
In this way, the Company can verify that the amount of the Client`s funds separated in the Client`s money accounts and held with third parties is sufficient to fulfil its obligations towards the Clients. Suggested Action: If you`re not sure which you`re holding client funds in the first place, make it a priority to find out. If you don`t own it but have the necessary permission, ask yourself internally if it will be in the company`s interest to keep it. If not, remove the permission. This is one of the key areas where companies in all sectors are struggling. The FCA rules and related guidelines set out in detail how the various components that go into calculating clients` money should be calculated. The letter suggests that many companies struggle to define their calculations in a way that demonstrates compliance. There also seem to be problems with the calculation frequency, where companies rely on the minimum requirement of every 25 days instead of increasing the frequency when it suits the business. Another area highlighted is the need to ensure that surpluses and deficits are corrected the day they are identified to ensure that clients` money is adequately protected.
A key concept underpinning client money rules is the need to ensure that client funds are only used for their intended purposes. All of the Customer`s Money remains in the Customer`s actual possession and may not be used for purposes for which it is not intended. This means that client funds should never be used to cover personal or business expenses, even if they are only temporary, including temporary expenses. Since the insurer accepts the risk that a business will hold money as an agent on its behalf, the company does not need a requirement for its authorization that allows it to hold client funds if the company only holds money in this way. If you hold money as an agent of an insurer and plan to mix the money from the risk transfer with the clients` funds, the companies must have the insurer`s consent to do so. The express written agreement must provide that the company is acting as the insurer`s representative and it must be indicated when the company is acting in that capacity. The agreement must stipulate that any mixed currency is money of the customer within the meaning of CASS 5, and the insurer must agree that its interests are subordinated to the interests of the other customers of the company. One of the most important and important tasks of an insurance broker is the management of client funds. This is also one of the hottest issues within the FCA and the regulator will have little sympathy for any company that doesn`t follow the rules of customer money.
While many brokers are satisfied with their procedures, recent experience has shown that a timely recall would not be a bad thing. The FCA clarified that management should have adequate oversight of the financial arrangements of their company`s clients and that a company cannot outsource its compliance responsibility and is responsible at all times for protecting the assets of its clients` clients. However, if, after reviewing the content of this letter, the client`s money rules and the referenced documents, they consider that additional support is needed to fully understand the clients` financial requirements applicable to the company, they consider that external advice may be useful to ensure that the appropriate framework is in place to protect the client`s assets. A: The customer`s highest money requirement is an amount charged during the period. This would be taken from the calculations of the company`s customers` money made during the period. Only one number must be entered, not the entire customer`s money requirement calculated during the period. Contracts can also be used to help a natural or legal person transfer risk. Contracts may include compensationDepartmentificationRemediation is a legal agreement between one party to hold another party harmless for possible loss or damage – not liable. Clause – a clause that ensures that potential losses are offset by the counterparty. Simply put, a indemnification clause is a clause in which the parties to the contract agree to indemnify each other for any damage, liability or loss arising out of the contract. Without this written agreement, money held as a representative of the insurer cannot be mixed with other funds of the client.
Instead, a business may need to have a separate account to hold money as a representative of the insurer that complies with the terms of the agreement with the insurer. The FCA considers it “recommended” to ensure that bank fees are charged from a corporate account, but note that if this is not possible, businesses should ensure that a prudent separation policy is in place and followed to prevent a lack of customer funds from accumulating when such bank fees are collected. Risk transfer refers to risk management Risk management is the process of identifying, analyzing and responding to risk factors that are part of a company`s life. This is usually done with a technique in which the risk is transferred to a third party. In other words, in a transfer of risk, one party assumes responsibility for another party. Taking out insurance is a common example of a transfer of risks from a natural or legal person to an insurance company. Companies can expect the FCA`s assessment of client compensation agreements to continue in accordance with their strategies for supervising general insurance intermediaries. While it remains to be seen to what extent this will lead to actual enforcement action, the regulator does not hold back a setback to remind companies of their ability and propensity to do so when deemed necessary. Suggested Action: If you`re not sure, check if any fixed money is already held in the customer`s account. If this is the case, ensure that each of these instances is authorized in accordance with the rules of CASS 5.5. If the insurer has authorized the blending of client funds and funds held as representatives of the insurer, all funds must be treated as client money and are subject to the requirements of CASS 5. A: An insurer can accept that a company holds money as an agent on its behalf.
A written agreement must be entered into between the company and the insurer stipulating that premiums and, if the insurer so permits, claims and premium refunds will be held as agents […].