The Financial Conduct Authority (FCA) has sent a ‘Dear CEO’ letter from Christopher Woolard, interim chief executive officer, to general insurance intermediaries. The letter states that during the COVID-19 pandemic it is imperative that intermediary firms maintain adequate arrangements to safeguard client money. The FCA expects senior management to have appropriate oversight over client money arrangements. The board should consider the letter and agree what further action might be necessary to ensure that the business has adequate arrangements in place. The letter identifies particular areas that the board should address, including the application of client money rules to the firm’s business model, governance and oversight, oversight (including due diligence) of third parties, client money calculations and reconciliations and acknowledgement letters for client money accounts. The letter states that should the firm be contacted by the FCA, it should be prepared to explain the actions taken in response to the letter.
The letter also warns firms to be aware of potential increased risks where money is deposited with EEA institutions after the end of the transition period. Firms are also reminder about risks posed by appointed representations. The FCA will expect intermediaries to have procedures in place to ensure that client money is handled properly by appointed representatives.
Control over client money has been an issue of interest to the FCA for a number of years, albeit without a change to the CASS 5 rules that are in place for insurance intermediaries. This latest Dear CEO letter indicates a change in tack from the regulator with an increased appetite for intervention where firms have failed to adequately protect client money.