global insurance management

Client Money and Assets - Audit Reqs

Sep 07 2011

Client Money and Assets

Relevance:             Authorised firms with permission to hold Client Money.

Action required:     Ensure your auditor is aware of the new requirements and review some of the known client money problems listed in this document.

Earlier this year we notified firms of the FSA’s new requirements for auditor reports connected to client money and assets (please let us know if you need a further copy). All client money audit reports for financial years ending on or after 30 September 2011 need to meet the new requirements.

The new requirements increase the obligations on firms and their auditors, which may involve a much more intrusive client money audit next time around.

The FSA reports that, in the past, many auditors have done no more than confirm that the client money calculations have been completed and that funds have been transferred at the correct time. For reporting periods ending from 30 September 2011 Auditors will have to go into much more depth in terms of the individual transactions which have been completed on the account. 

The reason for writing to you now is that we have studied the FSA report conclusions and reviewed the various potential breaches which could occur and thought it was worthwhile to bring the potential problems to your attention.  Just to be clear, the actual scale of the problem is not the major issue, as a breach is a breach, whether the amount involved is £5 or £500,000.  So any breach, no matter how small must be avoided.

We would therefore like you to review the following potential problem areas which the FSA have highlighted and establish whether you think there are problems of this type within your own client money account. 

  • Failing to take commission at the correct time;
  • A surplus of commission left in the client account, thereby weakening its trust status;
  • Firms retaining copies of their client money calculation, but not keeping copies of their bank reconciliations/bank statements to support the actions taken;
  • Credit ‘write-backs’ where firms write off an overpayment or a return premium as a fee rather than issuing them to the client;
  • Firms not checking why premiums paid by the client have not been requested by the insurer after the passage of a normal amount of time for the debit to appear on the insurer accounts;
  • Firms banking weekly, as they receive relatively few payments by cash or cheque (the requirement is for client money to be banked no later than the close of the business day following receipt);
  • Historic life commissions are paid by BACS directly into the client account;
  • Bank charges being withdrawn from the client account;
  • Return premiums to clients being paid straight out of the client account, prior to the return premium being received from the insurer;
  • Customer defaults on a credit agreement and the policy is cancelled;
  • Writing to a client to request a new cheque when one bounces.

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