March 2007

General Insurance Intermediaries: Client money

An FSA press release issued on 13 March 2007 draws attention to a range of material on the FSA website relating to client money, following FSA visits to a further 160 general insurance firms between September and December 2006. Most of those visited had made use of the various tools the FSA have provided to help intermediaries get to grips with the detail of the client money rules (in particular, the Guide to Client Money and the web-based training course) - though in some cases firms had only acted when they became aware that the FSA had selected them for a visit.

Firms that only ever handle clients' money as agent for the insurer under a risk transfer arrangement do not need permission to hold client money. It is important however that in such cases appropriate risk transfer agreements are in place, that they correctly specify their scope (ie including premium refunds and claims money where appropriate), and that firms then act in accordance with the terms of the agreements.

In cases where money held on risk transfer terms is to be mingled with client money held in a client money account under the rules, the risk transfer agreement must specifically permit this and the insurer's interest must be subordinated to that of other clients.

The press release makes it clear that the FSA will continue to take an interest in client money compliance, and firms who are still found to be non-compliant notwithstanding the considerable efforts the FSA have put into explaining the rules are unlikely to get a particularly sympathetic hearing.