Regulator's review reveals failures to deal with client money accounts
Lloyd's and London market brokers have been given one month by the FSA to show they are compliant with client money rules.
The ultimatum comes amid FSA concerns over brokers' handling of client money.
Following thematic reviews and risk assessments of brokers earlier in the year, the FSA said it had found "a large number of failures in the systems and controls" in this area.
The FSA has now written a 'Dear CEO' letter to Lloyd's and London market brokers requiring confirmation by 31 August that they have taken steps to ensure they are compliant with client money rules.
In the letter Julian Adams, head of the wholesale insurance division of the FSA, said: "Notwithstanding that the client money rules have represented a significant change for intermediaries, we were disappointed at the large number of failures in the systems and controls in this area."
Areas of concern highlighted by the FSA included the trust status of client money accounts and failure to perform client money calculations within the time limits. One firm, said the FSA, had a deficit in its client money account which could not be rectified.
An FSA spokesman said the message was just as applicable to the retail market, although he said it was unlikely that a 'Dear CEO' letter would be sent out.
"We are carrying out thematic work on the retail side, but we haven't got the same evidence on client money as we have with the wholesale market."
He emphasised that client money would be part of ongoing supervision in the retail sector.
Biba regulation and compliance manager Steve White said: "I am disappointed at the findings. As many insurers give brokers risk transfer there is minimal client exposure.
"I don't expect similar concerns for retail brokers."