Regulator writes to broker bosses to outline concerns after visits

The FSA has sent a letter and report to chief executives of major insurance brokers and investment firms surrounding its concerns over the handling of clients’ money and assets.

It follows a letter sent to firms in March 2009, which explained the obligations a firm has to protect clients’ money and assets and set out the FSA’s intention to conduct further firm visits during 2009.

The FSA said it has now visited a range of firms and found a number of failings. As a result, the regulator has decided to write to chief executives with an accompanying report containing details of visit findings, and highlighting some of the weaknesses discovered.

The FSA has already taken measures against a number of the firms that it visited, including referring two firms to enforcement, freezing a firm’s assets and commissioning skilled persons reports.

Sally Dewar, managing director of risk, said: “The client asset rules are a key protection for consumers. It is simply unacceptable that firms are not ensuring that consumers get the appropriate protection. We have pointed out our concerns to firms and will be following up these concerns with further visits this year.”

The report also includes examples of how firms should meet FSA expectations in relation to compliance with its requirements. Over the course of the year, the FSA will increas visits to firms to assess how well these are being met.

The FSA's key findings for insurance brokers

Good practice:

  • In a few instances, firms regularly updated policies and procedures in line with regulatory developments.

Poor practice:

  • Unclear allocation of duties by senior management led to confusion between staff or a lack of accountability.
  • Client money processes had in some cases been delegated too far, leading to a lack of senior level responsibility and accountability.
  • There were inconsistencies between Terms of Business Arrangements (TOBAs) and client money calculations.
  • Review and sign-off processes surrounding client money calculations and reconciliations were not always evidenced.
  • Some firms had failed to perform sufficient due diligence to assess client money risks arising from an acquisition.
  • Whilst we allow Non-statutory trust bank accounts to be used to extendcredit for funding insurers’ and clients’ normal insurance transactions, client money may not be utilised for other purposes.
  • Unallocated cash and legacy balances were not being reduced promptly enough.
  • Firms over-relied on CASS audit reports rather than perform their own assurance checks.

Download the letter and full report, right.