"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.
Want more content like this? This story was written by the insurance and reinsurance legal experts at Pinsent Masons, the law firm behind OUT-LAW.COM. We've recently launched a new section, legal info for Insurance and Reinsurance, giving free legal information to anyone working in that sector.
