Terence has over 35 years' experience in the Financial Services environment, covering general insurance, investments and mortgages.
When it comes to client money; to control or not to control: that is the question… (with profuse apologies to Mr W. Shakespeare!).
Many firms have the permission to ‘hold and control’ client money, but the question is, do they need both hold and control?
For those firms with this permission, we will typically see the following on the Financial Services Register – “This firm may hold and/or control client money but only for its insurance mediation activities.”
So, what is the difference?
Holding client money is quite straightforward and common. It is receiving premiums from the client, refunds, or claims payments from the insurer, and holding in a separate designated trust account.
Controlling client money is less common, although it is equally as common for firms to have this permission. It arises primarily from those heady days in 2004 when we were all completing our FSA applications. I know that when I did the application for the insurance broking firm I worked for, I just ticked both Hold and Control boxes just in case.
What does controlling client money mean?
Let’s look at what the FSA (yes, it is still called that!) Client Money Guide tells us (pg.17):
A firm must have written authority from its client to control that client’s assets or liabilities.
Controlling a client’s assets or liabilities would include:
Firms that have written authority from their client should:
Insurance brokers rarely have direct access to a client’s bank account and many firms will not hold credit card details, other than what is stored on the back-office systems; these are very secure, and usually, only the last four digits are only ever visible. To be clear, we refer to holding credit cards openly on a client file when we talk about control.
Therefore, we can see that controlling client money may not be an issue for many firms.
We could then recommend that firms that do not control should seek to vary their permissions. If you are varying your permissions for other reasons, then you could ‘tidy up’ your client money permissions at the same time.
Of course, we still see firms who do not hold client money (because all the money that is received from clients for onward transmission to the insurer is subject to a verifiably written risk transfer agreement with each of their insurers and wholesalers); yet they still have client money permissions. So why do you need these permissions? We have covered this matter in previous Insight articles, but should you wish to discuss any aspect of this please speak to your RWA Regional Business Manager.
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