FCA has started requesting client money information from brokers

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The FCA’s long-awaited client money rules for brokers could come out as soon as 3 July, according to accounting firm Mazars.

Mazars partner Amanda Barker told Insurance Times: “What I understand from a few different sources is that the new rules are now going for board approval on 2 July, to be released the next day, so we are expecting them to come out on 3 July. That would be great and would give some clarity to the marketplace.”

She added, however, that this was just an expectation and the FCA had not given any official indication of the release date.

An FCA spokesperson told Insurance Times that the regulator had not given any official guidance on the publication date for the new rules.

RWA compliance director Terence Clark said he was not aware of the 3 July date, but that current expectations are that the policy statement containing the new rules will be published in the third quarter.

He said: “We initially thought they might scrape into quarter two but I suspect it might be at the back end of quarter three.”

He also noted that the FCA has recently started asking for client money information from brokers, which could indicate that the rules will come out soon.

Clark said: “There has been quite a lot of activity over the last month with the FCA writing to firms asking for copies of their last CASS 5 audit and also the highest client money balance they have held in the last 12 months.”

He added: “I could be wide of the mark, but it seems too much of a coincidence when the client money rules are long-awaited that they are suddenly asking for more constructive information.”

Long time coming

Brokers have been awaiting the publication of the new rules for two years.

The FCA’s predecessor regulator the FSA published a consultation paper on changes to chapter 5 of the Client Asset Sourcebook (CASS 5), which contains the broker client money rules, on 28 August 2012.

The deadline to responses to the consultation paper, CP12/20, was 30 November 2012 and the regulator expected to publish the new rules in the second quarter of 2013. Brokers would then have 12 months to implement the rules.

The FCA took over from the FSA in April 2013.

Several indicated publication dates for the new rules have since passed. Some were expecting publication in spring 2014 and at the end of 2014, but both have gone by with no sign of the new rules.

The FSA launched the CP12/20 consultation in 2012 because it was worried about what it found in a review of broker client money rules.

It said its findings included “poor understanding of the rules and subsequent poor compliance, [and] missing or incomplete documents such as trust deeds and trust letters”.

New rules

The proposed new rules will impose tighter deadlines for the calculation of client money.

For example, brokers that hold client money in non-statutory trust accounts will have to calculate the amount of money that should be in the account at least every seven business days.

The rules will also prohibit conditional risk transfer. Under risk transfer agreements, when money is paid to the broker, it is deemed to have been received by the insurer, which means the insurer bears the risk of the money being lost if the broker goes bust.

Insurers often seek to impose conditions on granting such risk transfer, which the new rules will seek to abolish.

Further consultation?

There is a small chance that there could be a further consultation before the final rules come out.

Barker said: “There have been some rumblings about potentially some more consultation.

“If they were to do any consultation it would be specific points and a short time frame just to get everything finalised as soon as possible.”

Clark agreed that there was a chance of further consultation given the time elapsed since the initial consultation, but he added: “It would have to be a fairly short and snappy consultation. We really don’t want to let things drag on much longer.”