Regulatory responsibilities around handling client assets are a hot topic currently for many of the insurance broking firms to whom Searchlight provides training services. Under the terms of the Senior Managers and Certification Regime (SM&CR), there is increased focus on ensuring strong governance and a culture of accountability throughout regulated businesses. This means having a clear operational structure in terms of who’s responsible for what within a firm, ensuring there are no gaps or grey areas, and that an appropriate culture is in place from the top down.
All insurance broking firms who handle client money are required to nominate a single senior manager as the person primarily responsible for ensuring client assets are handled in compliance with CASS rules. This is one of the key ‘prescribed responsibilities’ under SM&CR that now apply to general insurance broking firms.
Selecting the right individual to carry out this role is vitally important. They’ll require a particular combination of knowledge, skills and experience – and also sufficient responsibility to perform effectively in upholding compliant CASS practices across the business. Any gaps in knowledge can be addressed with the right training input – but there’s no substitute for authority and experience.
Of course, assigning the prescribed responsibility is only one aspect of CASS compliance. We always stress when delivering CASS-related training that appointing responsibility to an individual in no way absolves board members of their CASS responsibilities and, indeed, that CASS responsibilities extend throughout a firm and should be explicitly reflected in job descriptions for all potentially affected roles.
This requires mapping and then monitoring CASS risks against practices, controls, policies, and procedures right across the business. A firm’s governance model must take account of CASS risks at every stage in the product, service, and client lifecycle.
Clearly this requires having a robust ongoing CASS training programme in place that includes in-depth face-to-face training for board members and senior managers – augmented with less intensive, but still thorough, training for other members of staff, perhaps delivered via e-learning.
The need for intensive training at senior levels is reflected in concerns expressed by many compliance specialists that senior management are often unable to articulate clearly exactly how CASS responsibilities are monitored and managed across different functions within their firms.
Another area of concern is around firms who are theoretically outside the scope of CASS rules because their business models do not involve holding client assets, they act purely on a ‘risk transfer’ basis, and do not have permission to hold client money. Problems can arise here if firms don’t properly appreciate that any failure – knowing or otherwise – to hold monies precisely in accordance with one or more of the terms of business agreements (TOBAs) that they have in place with insurers, could effectively mean they’re holding client money – and are therefore subject to CASS rules.
This underlines the importance of all firms understanding the full implications of CASS for their business. It can be challenging, of course, for smaller firms in particular to undertake regular (properly CASS-aware) reviews of their practices and procedures. But – with the regulator explicitly adopting a zero-tolerance approach to CASS enforcement, it’s not something they can afford to ignore.
If you’re operating on a pure risk-transfer basis, you’ll need to be able to document fully that you’re acting consistently in line with current TOBA conditions. If you do hold client money permissions, it’s essential your senior management and all other relevant employees fully understand and act on the duties and responsibilities this entails. Without in-depth CASS-specific training, there are countless pitfalls for the unwary.
Common issues around handling of client money include:
- Banking arrangements e.g. bank charges, establishing compliant bank accounts, &c.
- Reconciling accounts to bank statements
- Commission withdrawal arrangements
- Maintaining ‘buffers’
- Premium finance recourse arrangements
- Client refunds, bounced cheques and accounting for bad debt
- Life commissions
If you’d like to know more, call us on 01372 361177, or email email@example.com and we’ll be happy to help.
A version of this article first appeared in T-C News.