Decision 1: How Much Will You Hold Under Risk Transfer?

Under a risk transfer agreement, money you receive from a client is treated as received by the insurer. It isn’t client money, so CASS 5 doesn’t apply to it, though you still need to handle it carefully under the agreement. Many brokers aim to place most or all of their business on risk transfer terms because it keeps things simpler.

The practical questions are whether all your insurers will grant risk transfer, whether it covers claims money as well as premiums, and what happens with insurers that won’t. If even a small part of your business falls outside risk transfer, you are holding client money and the full CASS 5 regime applies to that money.

Decision 2: Statutory or Non-Statutory Trust?

If you hold client money, you must choose how to hold it:

A broker holding no client money at all has a lower minimum of £5,000. For most new brokers a statutory trust, or risk transfer only, is the sensible starting point. See our full guide to CASS 5.

Decision 3: Which Banks and Accounts?

Client bank accounts must be designated correctly, and the firm needs a signed acknowledgement letter from each bank confirming that the money is held for clients and can’t be set off against the firm’s own debts. Get these in place before money arrives. Think about:

• how many client accounts you need, and whether to separate premiums and claims;
• the due diligence you will do on the bank and how you will diversify if balances grow;
• how money paid into the wrong account will be identified and moved; and
• who can authorise payments out of client accounts, with dual signatories as standard.

Decision 4: Who Will Own Client Money?

At a Core firm that holds client money, a Senior Manager must be allocated responsibility for the firm’s compliance with CASS. At a small broker this is usually the chief executive, the finance director or a director with operational responsibility. Day-to-day, someone must:

• perform the client money calculation and reconciliation at least every 25 business days, and more often if the business needs it;
• investigate and correct any shortfall or excess promptly;
• notify the FCA of material breaches, including where a reconciliation can’t be done or a shortfall can’t be corrected; and
• keep the records the auditor and the FCA will expect to see.

Your compliance officer will oversee these controls, so their CASS experience matters. It is worth asking at interview how they have dealt with a reconciliation break. See compliance officer for insurance brokers and CASS oversight explained.

Decision 5: Systems and the CASS Audit

A firm that holds client money must have an auditor deliver an annual client assets report to the FCA. That means appointing a CASS auditor with insurance broking experience, and it means your broking system needs to produce the data for calculations and reconciliations without heroic spreadsheet work. Before you go live, check that:

• your system can show money owed to and by each client and insurer;
• you can produce an internal client money calculation quickly and reliably;
• unallocated cash is tracked and cleared; and
• your CASS auditor has agreed a timetable and knows your model.

On the finance side, our guide to why CASS experience has to be specific explains what to look for when recruiting.

How These Decisions Affect Your Application

For a broker applying for authorisation, the FCA will want a clear and consistent account of how premiums and claims money will flow. The business plan, financial projections, capital calculation and compliance monitoring plan should all tell the same story. Inconsistencies, such as projections that assume risk transfer while the policies describe a non-statutory trust, generate questions and delay. See becoming a directly authorised insurance broker and leaving a network: a 12-month plan.

If You Are Moving From a Network

Brokers leaving a network often haven’t handled client money themselves before, because the principal did it for them. Plan the transition carefully: agree with the network how premiums received before and after the switch will be handled, make sure clients and insurers have the new bank details at the right moment, and do a first reconciliation as soon as you start holding money in your own name. Expect the first few months to throw up allocation problems, and give your finance team the time to fix them rather than leaving unallocated cash to build up.

Common Mistakes

• Assuming everything is risk transfer: without checking every insurer agreement, including for claims money.
• Choosing a non-statutory trust without needing it: taking on higher capital and audit work for flexibility you don’t use.
• Missing acknowledgement letters: a common finding in CASS audits.
• No named owner: nobody clearly responsible for reconciliations when the person who usually does them is away.
• Inexperienced oversight: a compliance officer who has never overseen client money at a broker.

Questions to Ask a Compliance Officer About Client Money

• How would you check whether our insurer agreements give full risk transfer?
• When would you recommend a non-statutory trust, and what would it cost us?
• Talk me through a client money reconciliation break you have dealt with.
• What would you report to the board each quarter on CASS?

The Bottom Line

Settle the five decisions early, write them down and make sure your application tells one consistent story. Then appoint a compliance officer and a finance lead who have run client money at a broker before. If you need help with either, see our outsourced compliance officer service.

Frequently Asked Questions

Is money held under risk transfer client money?

No. Under a risk transfer agreement, money received from a client is treated as received by the insurer, so CASS 5 doesn’t apply to it.

What is the difference between a statutory and non-statutory trust?

A non-statutory trust lets a broker advance premiums or claims on credit, but needs higher capital, a trust deed and auditor confirmation of systems.

How often must a broker reconcile client money?

At least every 25 business days under CASS 5, and more often if the business needs it.

Do we need a CASS audit?

Yes, if you hold client money. Your auditor must deliver an annual client assets report to the FCA.

Who is responsible for client money at a small broker?

A Senior Manager must be allocated responsibility for CASS at a Core firm holding client money, with the compliance officer overseeing the controls.