Action plan to address FCA client money concerns

Posted on: 14 July 2021

Written by: Iain Stephen

On 2nd July 2021, the Financial Conduct Authority (FCA) sent out a 'Dear CEO' letter to all general insurance intermediaries holding client money. This letter reminded firms holding or controlling client money that they must establish and maintain arrangements to ensure the funds are adequately protected. They suggested that through supervisory activity they had identified common shortcomings that may indicate more widespread non-compliance throughout the sector.

The conclusion the FCA has drawn is that there is a lack of attention to detail and understanding in relation to the difference between Client Money Resource and Client Money Requirement. This creates potential risk to the protection of clients premiums either in transit to insurers, or return premiums from the insurer to policyholders.


The FCA's 'Dear CEO' letter was not unexpected, as firms have been struggling to meet the FCA client money requirements for some time. The core areas firms are getting wrong include:

  • Generally misunderstanding the requirements and therefore not meeting regulatory obligations

  • Not applying the appropriate due diligence processes before the appointment/review of a custodian

  • Making inappropriate client money reconciliations (for exasmple, mixing up the internal and external reconciliations)

  • Misunderstanding when client money is in fact client money and when it isn't

  • Not withdrawing commission appropriately


We expect that the FCA will be revisiting this topic to ensure that insurance intermediaries have taken the 'Dear CEO' letter on board. It is, therefore, important for all insurance intermediaries to, in the first instance, review their policies, processes and procedures. To begin your review, we suggest you carefully consider the following areas :

  • Check that both your internal and external reconciliations meet FCA requirements and review your reconciliation process

  • Check your process for removal of your commission and that your trust accounts are holding mostly the 'client money requirement' and not heavy with the 'client money resource'. Client accounts should only hold client money, everything else should be removed as soon as possible after clearance

  • Check that your client account acknowledgement letters meet FCA standards and are up to date

  • Understand risk transfer arrangements. If operating under risk transfer, confirm that your agency agreement with insurers confirms you may collect premiums under risk transfer arrangements. If any insurers do not, make sure you have the appropriate client account into which premiums should be paid


Cosegic offer tailored support to meet each individual clients needs. You may benefit from a CASS assurance review which will help you to ensure you are taking the right steps to meet the FCA's requirements. 

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