The FSA’s latest pronouncements about CASS make it all the more likely that insurance intermediaries will press for ‘risk transfer’ in their terms of business agreements with insurers to avoid CASS altogether.
Last month, I reported that the FSA had announced that it wishes to target insurance intermediaries’ client money systems and controls. True to its word, in the FSA’s Smaller Wholesale Insurance Intermediaries Newsletter (July edition), it commented that, as a result of the findings from the client money self assessment (which was sent by the FSA to 120 smaller wholesale insurance intermediaries that hold client money), the FSA has identified high level concerns regarding client money compliance.
These concerns include: (i) failure to document properly and record the client money trust; (ii) failure to complete a full and correct client money calculation on a timely basis; and (iii) failure to arrange a client money audit. In addition, earlier this month, the FSA published a consultation paper on its proposal for Recovery and Resolution Plans (RRPs) required of financial institutions (CP11/16). In relation to client money and assets, the consultation paper sets out proposed requirements relating to investment business client money and custody assets, known as the CASS resolution pack (CASS RP). The CASS RP aims to promote the speedier return of client money and custody assets, once a firm has failed, by ensuring that vital information on a firm’s client money and custody assets would be readily accessible to the relevant Insolvency Practitioner.
Whilst the FSA press release states the CASS RP proposals will apply to all firms subject to CASS 6 or 7 (investment business) and not CASS 5 (insurance intermediaries), the consultation paper notes that developments in this area will also be of interest to insurers since it is possible that the scope of the requirements for RRPs will be extended to other types of financial services firms in the future after the FSA’s consultation.
In light of these developments, it will be no surprise to see insurance intermediaries continue to push the use of risk transfer terms of business agreements in order to fall outside the scope of CASS.