FSA has noted poor compliance with several parts of its client money rules (CASS) for insurance intermediaries. It is consulting on changes to the rules to clarify its expectations. Its main concerns are:
- inappropriate controls around the use of the non-statutory trust;
- ineffective risk transfer documentation;
- application of the pooling rules;
- infrequent client money calculations;
- client money held by third parties; and
- client money held as designated investments.
FSA proposes to delete the existing CASS 5 and replace it with a new CASS 5A. The new text clarifies FSA’s expectations and makes changes to the ways in which some existing rules work. For example, FSA is concerned that many firms use non-statutory trusts when it would be more appropriate to use statutory ones. Many of its changes are intended to increase client protection. The changes will include prohibiting conditional risk transfer, and introducing proportionate rules for a “resolution pack” for insurance intermediaries. It also proposes to move the capital requirements for firms that hold client money to the Prudential Sourcebook for Mortgage and Insurance Intermediaries (MIPRU). It asks for comments by 30 November. (Source: FSA Consults on Client Money Rules for Insurance Intermediaries)