UK insurance brokers will have to be able to demonstrate that they have put in place properly embedded procedures to deal with handling client money or else risk losing their regulated status, according to insurance industry accountant and consultant Moore Stephens.
Moore Stephens Insurance Industry Group partner Stuart Markley added: “Senior management must be aware of the control procedures for client money which are in place in their firms, and they must be able to demonstrate such awareness, and the efficiency of controls and procedures, to the satisfaction of the regulator. Embedding proper client money handling procedures into the day-to-day operations of your company is a priority for achieving regulatory compliance.”
Writing in the latest issue of the Moore Stephens Insurance Industry Group newsletter, Insured Interest, Markley said: “The FSA has re-emphasised its continuing concern over the handling of client money and assets in the insurance industry. It has accorded a higher priority to achieving compliance with client asset requirements because it is concerned that firms are not always achieving an adequate level of protection. FSA visits to firms have uncovered a number of instances of poor management oversight and control, lack of establishment of trust status for segregated accounts, unclear arrangements for the segregation and diversification of client money, and incomplete or inaccurate records, accounts and reconciliations.”
Examples of poor practice on the part of insurance brokers identified by the FSA include: unclear allocation of duties by senior management; over-delegation of client money processes; inconsistencies between Terms of Business Arrangements and client money calculations; failure to evidence review and sign-off processes involving client money calculations and reconciliations; failure to perform sufficient due diligence to assess client money risk arising from acquisitions; and firms over-relying on Client Money and Custody Requirements (CASS) audit reports rather than performing their own assurance checks.
Stuart Markley concluded: “Recent fines, and the creation of a new unit to strengthen its existing capability, further emphasise the FSA’s concerns and focus in the area of client money and assets. The FSA has concluded that compliance with its CASS requirements is ‘poor’, and the focus is likely to intensify throughout the rest of this year, during which time specialist FSA visits will continue. Companies will have to think seriously about how prepared they are for such a visit, and how compliant their business is.”
