The recent publication of FCA Decision notices against One Call Insurance Services raises some really important risk considerations for any business. Whether your firm has client money permissions or relies on risk transfer arrangements it is vital to ensure that the terms of business agreements you hold with your markets truly reflect the way in which you operate.
What are Terms of Business Agreements?
Terms of Business Agreements record the general terms and conditions on which business will be transacted. Once an authorised signatory within your firm signs and returns a TOBA, you are legally bound to its terms. This includes any terms in relation to changes to the TOBA or any termination clauses should you later find that you are unhappy with anything within the agreement. It is therefore vital that you understand what you are agreeing to when entering into terms of business agreements.
The failure to have appropriate systems and controls for the reviewing and approval of Terms of Business Agreements (TOBAs) under which you write business could impact on your ability to handle premium collection in the appropriate manner. This could then have serious consequences on your ability to operate your client money account in accordance with the requirements of the FCA Client Asset Sourcebook (CASS) or, where you operate an insurer trust account, your ability to operate in accordance with the requirements of individual markets you enter into agreements with.
Broker Network has an in-house team that provides client money and agency services to our members, but if you don’t have access to this, here are some key points to look out for when reviewing and approving TOBAs within your business:
When considering the content of TOBAs it is important to remember that consistency is key. Ensure that you maintain the same standards across all agreements you enter into taking into account the way in which you operate and be aware that some agreements could consist of multiple terms that may be contradictory.
Some key points to note in relation to adherence to CASS requirements:
- Risk Transfer Status – Ensure that the risk transfer status is clearly defined, whether risk transfer applies to your firm and if there are any exceptions to this cascade. This information is vital to ensure that a firm knows when its fiduciary duty has been discharged.
- Trust Account Status – Ensure that the type of trust account that your Firm operates is acceptable to the market you are looking to transact with. Be aware of markets requesting a segregated account for the benefit of the specific market only.
- Co-mingling permitted – Ensure that where the monies are held under full risk transfer there is clear permission that they can be held in the same account as client monies, or where an Insurer Trust Account is permitted, that monies can be held in the same account as monies held on trust for other insurance undertakings.
- Sub- ordination granted – Ensure that where risk transfer monies are co-mingled with client monies, the market has provided clear confirmation that the interests of the insurer are subordinated to the rights of a client.
- Commission transfer – Ensure that there is clear confirmation of the point at which commission can be removed from the trust account. It is important to ensure that this is consistent across all agreements and that this truly reflects the systems and controls you have in place, whether you remove commission on a received or a settled basis.
As well as the key points that enable your adherence to CASS requirements you should consider additional terms included from a commercial perspective, you should ask yourself if these terms place any requirements on your firm that you are unable to adhere to.
Some examples may include; PI insurance requirements – does the market place any requirements on your firm to maintain a policy which is in excess of the level of cover to meet the regulatory minimum and is this requirement in excess of the cover your firm has? Are there any unusual or unreasonable terms, including anything that could result in financial exposure or anything that is over and above the regulatory or legal standard? There may also be clauses in relation to termination that could have an impact on your business if not considered alongside other clauses for example around client protection and non-solicitation. This is by no means an exhaustive list and further supports the need to have a thorough TOBA review and sign off process in place.
Once you have signed TOBAs, it is important to ensure that you retain a copy of the agreements signed by both parties and it is also best practice to maintain a register of the agreements you have entered into with details around the key CASS considerations clearly recorded. This will provide you with the information you need to support the compliant operation of your trust account and ensure that the ownership of funds in the trust account is clear.
Agency and TOBA Management Service
We work hard to ensure that our Members are aware of how to be compliant with the rules around Client Money and TOBA management and provide them with the tools and support to ensure these checks form part of their everyday tasks. If you do not already have access to this service please contact us for details.