Brokers may have to stop taking unclaimed client monies via credit write-backs
A recent judgment from the Commercial Court has called into question the validity of credit write-backs.
Insurance brokers are currently operating in a 13-month window where they can take credit write-backs for unclaimed client monies, subject to compliance with the rules. Once the window closes it is proposed that unclaimed monies can be paid to charities.
However, the recent judgment from Mr Justice Males in the case of Equitas Ltd and another v Walsham Brothers Company Ltd found that an insurance broker had a continuing and absolute contractual and restitutionary duty to remit funds.
David Coupe of EC3\Legal said: “This judgment raises real questions about the future of the regulator’s proposals for dealing with unidentified balance. What was a pragmatic approach to the issue has effectively been undermined.
“The judgment is based on the general principle of the law of agency which states that any agent that holds or receives money for his principal is bound to pay it over or account for it. As a result, a broker would be liable for interest on unpaid balances. In addition, the judgment does not address all the issues surrounding unidentified balances, as only a selection of the issues was before the court. In particular, aspects of limitation were not addressed and this uncertainty could have a significant impact on many brokers.
“Brokers should start to look at not only the write-backs they have taken, but what procedures they had in place prior to taking the write-back, and what their approach should now be in the light of this judgment pending further proposals from the FCA [Financial Conduct Authority].”