Regulator’s stance reflects a tougher approach to compliance and financial crime
The FSA has warned that it will target smaller brokers that are still failing to comply with its client money rules.
In the latest manifestation of the City regulator’s increasingly get-tough approach to conduct issues, its latest newsletter for smaller wholesale brokers states that a “significant number” must take action to remedy failings in their handling of client money.
The concerns have been sparked by a self-assessment exercise the regulator required 120 smaller wholesale insurance intermediaries to carry out.
Firms were required to report on how they are complying with recently introduced rules requiring brokers to separate client money from the rest of the company’s day-to-day activities.
The newsletter states: “We have reviewed the completed assessments and identified a significant number of firms that require some form of remedial work. Some of these firms have already been contacted and actions taken, with others to be contacted over the coming months.”
“Significant concerns” over the information contained in a firm’s response may trigger a visit by the FSA’s Client Assets Unit, the newsletter warns. The City regulator is set to introduce next year a new fee, based on how much money firms hold in their client money accounts, to fund the unit’s operation.
Concerns highlighted in the self-assessment exercise include failure to properly document and record the client money trust, to complete a full and correct client money calculation on a timely basis, and to arrange a client money audit. All these failures are breaches of the client money rules.
Compliance consultant Branko Bjelobja said the findings reflected widespread ignorance about the client money rules among the broking community. “Many brokers, retail and wholesale, are oblivious to what the FSA requires of them. Some still don’t know if they need a formal external audit. “
RWA Compliance Services head of compliance Terence Clark said the FSA’s concerns over client money applied equally to retail and wholesale brokers. “All firms should be reviewing their client money systems and controls, and should not be frightened of seeking expert outside assistance, even to give them comfort that all is in order.”
Highlighting concerns over the rules’ complexity, Biba head of compliance and training Steve White said: “The rules are the rules. As a set of principles, there is not much wrong with them, but even the FSA would admit that they are very complex and can make it difficult.”
The FSA’s hard line on client money reflects the more intrusive style of regulation that the regulator is adopting post-financial crisis. White said that its Arrow visits were becoming more intrusive, with an increasing focus on financial crime and bribery in addition to compliance with the client money rules.
n The Financial Ombudsman Service (FOS) published new statistics this week showing that
the number of payment protection insurance (PPI) complaints has quadrupled in the past year.
In its latest newsletter, the ombudsman says it received 56,025 new PPI cases in the quarter ending June 2011, which compares to just 13,520 new PPI cases in the equivalent period last year. The figure for Q1 2011/12 also exceeds the 49,196 PPI complaints received during the whole of 2009-10.
FOS principal ombudsman and decisions director Tony Boorman writes in his foreword to the newsletter that the watchdog received 900 new PPI complaints a day at times during the latest quarter.
He adds that the FOS is preparing to split out PPI from other general insurance complaints when it publishes its next set of company by company complaints data in September.
We say …
? Nobody who offers a professional service would like a return to the days when some brokers used the client money account as a slush fund, but the client money rules are over-complex, particularly for smaller brokers without compliance teams.
? As the conduct wing of the FSA prepares to metamorphose into its new incarnation – the Financial Conduct Authority – it must keep its requirements proportionate to the size of the entities it is regulating.