The FSA will undertake a large scale review later this year into the handling of client money by general insurance intermediaries.
The regulator said the decision follows pilot work which showed a worrying level of failure by both wholesale and retail intermediaries to comply with FSA rules on client money potentially putting consumers at risk of financial loss.
Adequate protection for clients' assets is a key requirement for firms under the FSA's Principles for Businesses.
The review will involve visits to more than 200 wholesale and retail firms targeted to particular areas of the UK to maximise local impact.
The FSA said it wants to see a significant improvement in how firms are complying with client money rules.
Common problems identified through the pilot studies included failure by firms to:
The FSA said on the basis of the findings a number of firms have already been referred to enforcement for potential breaches of client money rules and inability or unwillingness to take corrective action.
The pilot studies also showed that many smaller retail firms were willing to comply with the client money rules but some did not fully understand all the rules particularly how to do the client money calculation.
As a result the regulatory body is publishing a Guide to Client Money setting out what firms are expected to do coupled with advice on how to do it.
Julian Adams, head of wholesale insurance firms FSA, said: "We have seen some improvement among large and medium-sized wholesale firms since the work we did last year, but it is disappointing that some firms are still failing to implement satisfactorily our rules despite the guidelines we set out in our Dear CEO letter last July.
"We will consider taking enforcement action against any firm, where we see wilful non-compliance or an inability to handle customers' money in line with our requirements."
