Brokers fail to sign up to last minute deal on client money
Lloyd's brokers risk being in breach of FSA rules on client money, despite a last minute deal on the eve of regulation.
On 13 January the Lloyd's Market Association (LMA) and the London Market Brokers' Committee (LMBC) produced a model endorsement to the existing terms of business agreements relating to binding authorities.
The associations claimed that they would "satisfy FSA requirements".
But a market source warned that some brokers and managing agents had not signed the new agreements or had made amendments, leaving confusion over the handling of client and insurer monies and the risk of illegal trading.
"As a result some brokers will be able to co-mingle monies, some won't and others will have to hold insurer monies in specified accounts," the source said.
"Brokers will need to take great care that they handle monies correctly or risk being in breach of the rules and personal liability for the directors."
LMA head of underwriting and claims Bill Rendall said: "Any Lloyd's broker who does not have written authorisation to trade on their [insurer's] behalf is in breach of the rules. The obligation is on the broker to obtain that."
The agreement also failed to address non-binding authorities or open market risks. The LMA said this would be addressed by 14 July, when the transitional arrangements on co-mingling end.
But the source said that this would fail to stem the risks to Lloyd's brokers and provincial brokers, revealed last week in Insurance Times.
Rendall denied there was a problem. He anticipated that risk transfer would be granted in the final Tobas.