The FCA have issued their latest ‘Dear CEO’ letter to general insurance intermediaries after findings within the financial resilience surveys identified shortcomings across the industry.
The FCA’s warning comes after the Regulator reviewed some general insurance intermediaries’ client money arrangements and identified common failings which it believes may indicate a more widespread problem throughout the sector.
The Dear CEO letter reminds firms holding or controlling client money that they must establish and maintain arrangements to ensure the funds are adequately protected. The key issues the FCA found include;
- Client money calculation- of the firms the FCA review, over half assessed did not appear to have client money calculations that aligned with FCA expectations.
- Appropriate withdrawal of commission- the FCA’s findings saw that there was many instances where firms had withdrawn commission from client money
accounts before a client money calculation had been completed.
- Client money bank accounts and acknowledgement letters- Some firms holding client money failed to adequately segregate client money from its own money by paying it into a client bank account and did not clearly distinguish the account
from the firm’s other accounts. Some firms had acknowledgement letters with incorrect details.
- Segregation of client money- it was also found that firms had not taken care to ensure their client bank account remains a trust account at all times
- Co-mingling risk transfer money with client money- some firms did not recognise that risk transfer money held in a client money account is subject to the
client money rules.
- Client money audit- firms had not arranged a client money audit where it operates a non-statutory client money account, or it has held over £30,000 in a statutory client money account at any point during the client money audit period.
You can read the Dear CEO letter in full here.