The Financial Conduct Authority (FCA) has today written to firms providing an update on Consultation Paper 12/20: Review of the client money rules for insurance intermediaries[1], where it had proposed some changes to the rules and guidance in Chapter 5 of our Client Assets Sourcebook (CASS).
Since the consultation was published, the FCA has been working very closely with the industry, including trade bodies. The FCA believes the industry has increased its focus on protecting client money and engaging with the FCA on its policies in this area. In addition, a number of initiatives have taken place that are leading to improvements. These include:
- an enhanced proactive CASS supervision strategy for general insurance intermediaries, informed by the review of audit reports from approximately 400 firms, has been rolled out; and
- an updated reporting requirement applicable to general insurance intermediaries holding client money (RMA-C), which is enabling the FCA to collect more robust information from these firms.
The FCA will continue to work with general insurance intermediaries to mitigate risks such as conditional risk transfer and incorrect client money calculations and reconciliations. Where it sees poor practice, the FCA will take appropriate steps to ensure client money is protected.
The consultation process is designed to encourage stakeholders to share their views with the FCA so the right policy is put in place before changes to rules are made. Following feedback received on the original proposals, re-consideration of their costs and benefits in light of the new requirements brought about by the Financial Services Act 2012, and review of additional data collected about the impact of the proposals on smaller firms, the FCA has concluded that it would not be proportionate to proceed with the proposed rule changes at this time.
The FCA will not pursue any rule changes to CASS 5 without a new consultation. The existing CASS 5 rules remain in place and general insurance intermediaries holding client money or operating under risk transfer agreements are required to comply with these.
Notes:
The FCA also recently fined Towergate Underwriting Group Limited for failings in relation to its protection of client and insurer money.