FSA to ease burden of client money rules

The FSA is to reduce the administrative burden on brokers arising from the client money rules.

The announcement comes after a study commissioned by the FSA highlighted the client money audit rules as imposing particularly high administrative costs on regulated firms.

The study, conducted for the FSA by Real Assurance Risk Management, found the administrative burden associated with the client money audit rules amounted to 1.29% of the total FSA administration burden of about £600m per year for regulated firms.

The FSA said it would now review this area as part of its "commitment to focusing on areas of greatest cost".

It said: "The client money audit requirements - along with the wider client asset rules - are an important consumer protection.

"We are planning a review in 2007/08 of our overall client assets regime, and in that context will examine any opportunities for reducing the burden of the audit provisions set out in our handbook".

Other areas of the rules highlighted by the study as being costly to administer included the training and competence record-keeping requirements (6.5% of FSA administrative burden) and brokers' retail mediation activities returns, RMAR (2.69%).

The FSA said it would begin work to review its RMAR rules in the third quarter of 2006 "to assess whether any data needs to be added or taken away".

On training and competence requirements, the FSA said the studies would "help steer us in the work that is continuing [in this area]".

The FSA is currently engaged in a programme of work designed to move towards a more principles-based rather than rules-based regime.

FSA chief executive John Tiner, said: "We are determined to strike the right balance between discharging our statutory duties and avoiding unjustified costs. We can do this only with a sound understanding of both the benefits and the costs of regulatory action."

Biba regulation and compliance manager Steve White said: "Anything the FSA does to look at proportionality, both in terms of time and costs, is welcome."

White said the client money review in particular was a "positive step" as this area was expensive for brokers.

ABI director general Stephen Haddrill said: "The FSA's research shows just how important it is for the FSA to press ahead with its work to reduce the volume and burden of the detailed regulatory rules for the retail financial services sector.

"The industry fully supports the FSA's move towards a more principles-based regulatory regime.

"This will benefit insurance customers by reducing costs and boosting innovation. There is some hard work ahead and the industry is committed to playing its full part."

The FSA is undertaking a review of the insurance conduct of business rules (ICOB). It will publish its findings in the first quarter of 2007.

FSA: risk transfer deals must be compliant
The FSA will write to insurers warning them of the need to ensure risk transfer agreements with brokers are compliant.

The regulator requires that risk transfer agreements are formalised and "detail explicitly the nature of each risk transfer in place".

An FSA spokesman said supervisors would be checking with insurers that agreements were compliant. Work will also be undertaken later this year to determine the extent to which brokers are complying with risk transfer agreements.