One Call Insurance Services Limited (One Call), an insurance intermediary primarily selling motor and household insurance through price comparison websites, was found to be in breach of client money rules. One Call was fined £684,000 and restricted for a period of time from charging renewal fees to its customers.
The FCA found One Call to be in breach due to:
- failure to appreciate that certain Terms of Business Agreements (TOBAs) did not provide effective risk transfer. One Call has relied on verbal assurances from insurers as to whether risk transfer would form part of the TOBA and had failed to check whether the TOBAs had effective risk transfer provisions; and
- failure to treat funds advanced by a third party premium finance company as client money. As these funds were being received in the course of or in connection with insurance mediation activity, the funds should have been held as client money. One Call failed to do this as it viewed the funds as a loan to One Call from the premium finance company.
The effect was that One Call inadvertently used client money to fund its own working capital requirements, make payments to directors and, indirectly, to capitalise a connected company, One Insurance Limited. The outcome had been that One Call had inadvertently spent client money for its own benefit resulting in a client money deficit of approximately £17.3m.
In the FCA’s decision, the FCA acknowledged that these failures may have arisen as a result of honest mistakes. The FCA found that the breaches were not committed deliberately or recklessly but they were negligent. However the FCA stated that had One Call appointed a competent, knowledgeable person and followed good industry practice of placing this function within an appropriate resourced finance function, the failing may not have been as serious. One Call has also received warnings from its external auditors that its treatment of client money may have been inadequate.
The FCA stated that the case was particularly serious because despite advice from the firm’s external auditors, it took FCA intervention for One Call to arrange adequate protection for client money.
One Call thought it was protecting client money because it paid monies from customers into its client money bank account and only withdrew its commissions from the client money bank account once the insurer had been paid. Due to One Call’s failure to appreciate that certain TOBAs did not provide effective risk transfer, One Call was paying both risk transfer money and non-risk transfer money into a client money account. As money was being co-mingled, the whole account should have been treated as client money. By failing to carry out adequate client money calculations and to maintain a surplus in the client money bank account, One Call failed to comply with client money rules. Had One Call become insolvent, the ownership of the money would not have been clear and litigation may have been required to determine whether money was client money or insurer money.
What is the takeaway for brokers?
The One Call decision demonstrates the FCA’s vigilant attitude to ensuring intermediaries comply with client money rules and have dedicated appropriate resources to ensure compliance. It is important for brokers to review TOBAs carefully and to ensure they reflect the agreed client money arrangements. Brokers should also ensure that funds received in the course of insurance mediation activity are categorised correctly and treated as client money where required.