FCA Dear CEO letter - client money arrangements
We asked UKGI’s compliance experts to give us their thoughts on the FCA’s July 2021 Dear CEO letter about client money, and the key issues it raised for insurance brokers. This is what they told us:
In July this year, the FCA followed up its September 2020 Dear CEO letter with another letter (“Maintaining adequate client money arrangements”).
This newest letter is relevant for firms which hold client money and for those which hold money under risk transfer arrangements. It’s more important than ever for firms operating on a risk transfer basis to understand the nature and details of the risk transfer provisions of each relevant insurer TOBA that they have in place, and to confirm that all risk transfer money is held in compliance with insurer agreements. If you don’t, that money could be subject to the client money (CASS 5) rules, and if your firm doesn’t have permission to hold client money you could be acting outside your permissions and / or be in breach of CASS 5 rules.
The FCA letter initially sets out what it sees as firms’ obligations, it’s expectations of them, and actions they may take if a firm is in breach. It goes on to set out six key issues, which are summarised below:
- The client money calculation: this must be performed regularly to ensure that your firm has sufficient money in its client bank accounts (and held by third parties) to meet its obligations to clients.
- Appropriate withdrawal of commission: you should only draw down commission after a client money calculation is performed and a surplus has been identified.
- Client money bank accounts and acknowledgement letters: you should ensure that you have appropriate records in relation to your client money accounts including copies of the acknowledgement letter from the bank which should contain the wording required by CASS 5.5.49 R.
- The segregation of client money: it is imperative that firms segregate client money by paying it into a client bank account. You must also take care to ensure your client account remains a trust account at all times.
- Co-mingling risk transfer money with client money: if you hold money as agent of an insurer and some or all risk transfer money is co-mingled with client money, you must have the insurer’s agreement to do so.
- Client money audits: your firm must arrange a client money audit if it operates a non-statutory client money account, or has held over £30,000 in a statutory client money account at any point during the client money audit period.
The FCA sees client money issues as significant, so to help firms ensure they understand and address the concerns the FCA has raised UKGI is running two ‘pop-up’ webinars in September. One will cover the rules and obligations around holding client money and the other will be looking at risk transfer. The webinars are available to Aviva firms at the preferential UKGI member rate. Look out for your invitation and, in the meantime, for more details phone us on 01925 767893* or email: ABC@ukgigroup.com.
*calls charged at standard network rates and may be monitored and/or recorded.