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FSA/PN/033/2007
13 March 2007

The Financial Services Authority (FSA) said today that general insurance intermediaries holding client money have no excuse for failing to protect it adequately after recent work found that those who used its new Client Money Guide showed a marked improvement.

Between September and December 2006 the FSA conducted its third phase of client money work visiting 161 general insurance intermediaries. Results showed that most intermediaries in the sample who had used the FSA's new tools provided to help them, which include the Guide to Client Money and a web-based training course, had a better understanding of client money handling than in previous FSA work on this issue.

Sarah Wilson, Insurance Sector Leader, said:

"Ensuring that firms protect client money remains a priority for the FSA. We are still concerned about the overall level of compliance in this area as some firms only used the help available once they were aware of our forthcoming visit or did not use it at all. General insurance intermediaries holding client money should be aware that we could visit them at any time and they should act now, if they haven't already, to ensure they have the right systems in place. Our previous client money work revealed a worrying level of failure. Effective tools are now available to help ensure compliance where there is any doubt. Any failures that we identify will continue to be viewed seriously."

The FSA's findings showed that the main areas where its tools helped intermediaries improve their client money compliance were regularly doing a client money calculation correctly; segregating client money in trust accounts within one day of receiving funds; and arranging for client money systems and controls to be audited.

Since regulation began the FSA has referred a number of general insurance intermediaries to enforcement and published action against five of them for breaches of its client money rules which include the misappropriation of their clients' money. It will continue to look at client money in firms as part of routine supervisory visits, spot checks and where the regulatory return indicates there may be problems.

Notes to editors

1. The FSA's third phase of client money findings and a health check and flow chart for small firms are available on the general insurance web pages.
2. The FSA's guide to client money for general insurance intermediaries and web-based training course are also available.
3. The FSA highlighted its concerns about the need for firms to protecting their clients' money in a Dear CEO letter in July 2005 and again in a press release on 4 May 2006.
4. Principle 10 – A firm must arrange adequate protection for clients' assets when it is responsible for them. The FSA's rules are designed to protect clients if a firm fails while it is holding client money or if it is unable to transfer premiums to insurers or claim money or refunds to clients. This is the case whether the amounts held are small or client money is held temporarily.
5. The FSA has published enforcement action against five general insurance intermediaries; these include Walsall Bridge Insurance Ltd, ICM Group Ltd, Steven Leslie Davis, Paul Harrison and Anthony Lee Rodgers.
6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.