Q&A

Question: A client of ours is a large motor dealer with over 100 individual operations throughout the country.

Each individual dealer will typically sell 20 insurance policies per month. They receive the premiums for these general insurance products, typically between

£100 and £400 per policy depending on the product sold. Premiums received will either be paid as part of the cost of the car purchased or will be received from the finance company which provided the money to acquire the car. Alternatively the customer can pay for the policy separately, so the monies will come in from a variety of different sources.

The dealer believes that it will have to set up client money accounts at every one of its dealerships and, in effect, all monies will go into these accounts in the first instance. As you can imagine, this will cause a massive accounting headache. As an alternative, the dealer wants to know if it could set up a statutory account, which will always hold substantially in excess of the sum of the individual policies sold each month. Would this solution be acceptable to the FSA?"

Answer: The FSA's client money rules are likely to force motor dealers to revisit their processes for handling 'client money'. In the first instance, they should consider whether risk transfer applies or whether it might be available. Failing that, the FSA rules will require ALL money that includes an element of insurance 'client money' to be banked in accordance with its rules and then split out as appropriate.

Unfortunately, the proposal suggested does not fit with the client money rules as they are written. I guess this is not what your inquirer will want to hear but it is what the rules say.

Steve White, Biba regulation and compliance manager