Review finds some improvements but worries remain

There are still concerns over the level of brokers' compliance with the FSA's client money rules, the regulator said this week. It warned that monitoring compliance with the rules would continue to be a high priority.

The FSA this week published its findings from the third phase of its client money work in which it visited 161 brokers.

The regulator said the majority of firms visited had improved their understanding of the rules and were following the regulatory requirements.

But the FSA found that a number of brokers took steps to improve their compliance with the rules, using guidance material, only when they became aware of a forthcoming visit.

As a result, the FSA said it could not comment on the overall compliance level among brokers.

Andrew Honey, head of insurance in the small firms division of the FSA, writing in Insurance Times this week, said: "It was often apparent that the guide had only been used when firms found out we were going to visit them to review their client money procedures.

"For that reason we are not making any claims about overall levels of compliance with our requirements on the back of this work."

He added: "Even taking account of the improvements we have seen, we are still concerned by the fact that 7% of firms visited were not doing a client money calculation at all, and another 7% of firms did the calculation for the first time ahead of our visit."

Honey said the review also found confusion over when the client money rules applied.

The FSA said it would continue to look at client money compliance as part of routine supervisory visits, spot checks and where the regulatory return indicates there may be problems.

Sarah Wilson, insurance sector leader, said: "Ensuring that firms protect client money remains a priority for the FSA. General insurance intermediaries holding client money should be aware that we could visit them at any time and they should act now, if they haven't already, to ensure they have the right systems in place.

"Our previous client money work revealed a worrying level of failure.  Effective tools are now available to help ensure compliance where there is any doubt," said Wilson.

"Any failures that we identify will continue to be viewed seriously."

Since the FSA began regulating general insurance brokers in January 2005, it has been concerned about poor levels of compliance with the client money rules.

The FSA has referred a number of general insurance intermediaries to the enforcement division, and published action against five of them for breaches of its client money rules which include the misappropriation of their clients' money.