High profile brokers to meet FSA over client money security
A group of high profile brokers will lobby the FSA to make the risk transfer of client money mandatory.
In CP174, the FSA proposes two ways for brokers to guarantee the security of client money; either by transferring the risk to insurers or by holding client money in segregated accounts.
The majority of brokers support the risk transfer option, but the FSA has accused insurers of doing a U-turn on the issue after initially backing risk transfer.
In order to ensure that risk transfer remains on the table, the brokers, who did not want to be named, have set up a meeting with the FSA for early July. They will discuss the possibility of the FSA imposing risk transfer as the only option to guarantee the security of client money when it releases its policy statement and final rules based on the proposals in CP174 in September or October.
One broker said: "I think the Insurance Mediation Directive [by which the FSA is bound] would allow the FSA to actually impose risk transfer.
"The key thing about it is that without risk transfer there is nothing in the regulations that would stop a collapse like Ward Evans from happening and if brokers go down we end up paying," the source said. "That's not right."
Under the FSA's proposals if client money is not guaranteed by insurers, in the event of a broker collapse consumers would have recourse to a broker-funded Financial Services Compensation Scheme.
The source said that imposing risk transfer would reduce the likelihood of broker collapses as it would force insurers to choose which brokers they gave agencies to more carefully. "Let's get back to basics. Whose money is it? It's the insurers' money," the source said.
The brokers also plan to write to the ABI to indicate that risk transfer is their preferred option.