Insurance brokers unaffected by client money rules review – for now

"These firms came within the scope of CASS as recently as 2005 and it would be premature to review the relevant requirements now," it said.

The FSA plans to consult on possible changes to the rules applying to general insurance intermediaries in early 2009.

The present consultation focuses on simplifying the structure of CASS as a whole so that, as far as possible, a single framework of rules will apply to all firms carrying on investment business.

The FSA has, however, outlined some of the topics it will want to cover when it reviews the insurance-specific regulations. These draw on the FSA's research into how the current rules are operating in practice.

Refunds

Client money held by insurance intermediaries will principally be made up of premiums, claims money and premium refunds. One area the FSA would like to revisit is the rule restricting when intermediaries can pay premium refunds out of a statutory trust account.

Under CASS, insurance intermediaries can choose whether to hold client money in a designated bank account or to agree with an insurer that the money will be held at the insurer's risk, removing any credit risk on the part of the customer.

Money in a designated bank account can be held in a "statutory" or "non-statutory" trust account. The first is created automatically by law, so is simple to set up. The second is more complicated because it requires a trust deed.  

Currently, firms using a statutory trust account cannot pay premium refunds to customers until they have received the money from the insurer. This can take some time to arrive. It has been suggested that it would be easier (and fairer to customers) to allow the intermediary to pay refunds straight away out of the commissions it holds in this account.

Reconciliations

The FSA also wants to look into simplifying the rules that require intermediaries to perform regular reconciliations of the money held in a client trust account in order to check it contains enough funds. The current procedures have been criticised for being unnecessarily onerous.

Another rule up for review concerns appointed representatives or ARs. There are restrictions on the ways in which an AR of an intermediary can handle client money. Either the AR pays it straight over to the intermediary, or the intermediary has to set aside an amount in its client account estimated to be equivalent to the sums held by the AR, and perform regular reconciliations of the money in the account against that estimate.

This second option is cumbersome (and so rarely used) and the FSA would like to see if it can be simplified.

The FSA said it also plans to clarify some of the more confusing parts of the rules by providing additional guidance.