global insurance management

Client money-Potential Additional Fees


Jan 30 2011

Client money – potential additional fees for firms with client money permissions

 

Relevance: Only firms with permission to hold Client Money


Action required: Assess if permission remains a necessity.


As part of their continuing work in this area, the FSA has been looking at the funding of their supervision arrangements of firms holding Client Money and Assets.

It seems that the FSA has been put under pressure from central government to ensure that regulating and monitoring client money and assets has specific, dedicated resources. It is for this reason that in its recent consultation paper on regulatory fees and levies the FSA has indicated that it intends to add a new fee-block so that it can recover the costs of supervising firms that have relevant client money permissions.

It has already created a new unit with a number of separate teams responsible for supervision, policy, risk and data analysis – and past performance suggests it will only increase in size!

If your business is entirely covered by Risk Transfer arrangements, you will not be affected.

However, even if firms only hold a small amount of client money then they will be incorporated in the proposed new arrangements. It seems that the new fees are likely to be based on the amount of client money held at the end of a reporting period and the levy for most brokers may be relatively modest, at least to start with.

In addition to the potential for increased fees, we have previously commented that the cost of obtaining a client money audit is likely to increase. It should also be borne in mind that permission to hold client money raises the risk profile of the firm (although the impact of this is hard to measure objectively) and, for smaller firms, the increased capital requirement may be a factor.

As most insurers now seem to understand the issues around risk transfer and are often willing to cascade this to you though wholesale brokers (all direct insurer agreements include risk transfer) this may be a good time to look at whether you really need this permission.
 

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