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Wednesday, 3 October 2012

Moore Stephens says FSA client money rule changes will cause problems for intermediaries

LEADING accountant and insurance consultant Moore Stephens says that the FSA’s proposed new rules on client money are certain to cause concern among insurance intermediaries, who could be asked to spend more time and money on their obligations in this regard.

The FSA’s consultation paper – CP12/20 – Review of the client money rules for insurance intermediaries – seeks intermediaries’ views on proposed changes to the client assets (CASS) rules, which are meant to ensure that clients’ monies are protected in the event of a firm’s failure.

Stuart Markley, a partner with the Moore Stephens insurance team, says, “It is fair to say that the FSA has never been entirely comfortable with the way insurance intermediaries hold client money under the CASS rules. It believes that insurance brokers have a poor understanding of the current rules. This is borne out by the results of FSA thematic compliance reviews which show evidence of poor compliance practices and widespread record-keeping errors involving missing or incomplete documentation. This puts at risk the objective of protection in the event of failure.”

The FSA has invited firms to comment on its proposals by 30 November 2012. The proposals cover a number of topics, including client money calculations, bank reconciliation, the advancing of credit, and unallocated client money. Markley says, “The FSA would like to see client money calculations undertaken much more frequently than every 25 days, which the current rules mandate. This will be of concern to firms with limited IT resource or man-hours. The FSA has also proposed that time limits are placed on the credit extended by firms to clients or insurers and that, after these limits have expired, the money must be replaced. This will force brokers to look more closely at their credit arrangements, particularly with regard to prompt collection. Even though brokers may already have systems in place to deal with this, these would have to be updated to ensure that no credit provided breached the rules.

“Another of the FSA proposals requires firms to undertake reconciliation of client money with their bank accounts two days after the client money calculation, as opposed to the ten days allowed under the existing rules. Again, this has potential to cause concern for those brokers with limited resources. The FSA is also proposing that any unallocated client money should only be held by intermediaries for a maximum of 90 days, after which time the cash should be returned to the sender or, of that is not possible, to the remitting bank. This constitutes another layer of checks and controls for intermediaries to deal with.”

Moore Stephens urges firms to respond to the FSA consultation paper. It adds that, while the paper is aimed at insurance intermediaries, some of the elements of consultation are very relevant to insurers – in particular, the focus on terms of business agreements and risk transfer elements. Stuart Markley says, “The changes proposed by the FSA are sure to stir some debate and bring about some concern, not least because they could result in further time and expense being spent on client money obligations, with additional checks and controls being put in place. If brokers and other intermediaries fail to respond to the FSA by the due date, they will lose an important opportunity to state their case.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting networks, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

For more information:

Stuart Markley, Moore Stephens LLP
Tel: +44 (0)20 7334 9191

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