There are four relationships where the application of compliance has to be considered by a fully authorized firm:
- Directly to the customer
- Through other authorized intermediaries
- Through appointed representatives
- Through introducers
When a fully authorised intermediary sells directly to the customer they are responsible for the compliance and will have procedures in place accordingly.
If a customer is ‘introduced’ they are, in effect, also a direct customer so again it is straightforward.
Introducing on a ‘casual’ basis is not a regulated activity, but a formal arrangement involving remuneration in any form requires a business arrangement to be in place and the relationship notifying to the FSA. Firms cannot mix and match and be Appointed Representatives for one principal and an Introducer to another.
Fully authorised intermediaries can arrange policies for customers through other fully authorised intermediaries and be supplied with the policy documentation necessary e.g. policy summaries, certificates and schedules, but the status disclosures, terms of business and Demands and Needs would be their own i.e. the customer facing party delivers the compliance. The insurance provider must ensure that the intermediary who is the ‘customer facing party’ is provided with all that is needed in the way of information and documentation that is necessary for them to meet their regulatory obligations.
Similarly an Appointed Representative has to deliver the compliance, but the principal is ultimately responsible for it and certainly responsible if it is not delivered.
A principal has responsibilities where Appointed Representatives are concerned. They must ensure that an Appointed Representative is ‘fit and proper’ to deal with customers and the business is viable. There must be checks and resources in place to monitor that the Appointed Representatives are compliant and remain so. The FSA have to be informed of any changes to their details or activities.
Similarly an Appointed Representative has responsibilities. They must understand and comply with the FSA rules. They must be prepared to allow the principal to have access to their premises, records and staff and provide all the assistance the principal needs to fulfil its responsibilities. They must abide by the written contract that sets out the rights and duties of each party under that FSA regulations.
Appointed Representatives are not allowed to hold client money but property managers can collect service fees that includes insurance premium and hold it in a ‘client account’ which is a statutory account that complies with the ‘CASS’ [client’s assets] Rule 5.3. This type of account ensures the client’s money is protected. Royal Institute of Chartered Surveyors members already met this requirement so the FSA agreed that property managers who met the RICS standard are not required to have another account. Due to the protection offered by a statutory account the FSA will allow the ‘co mingling’ of insurance money with other ‘client money’ if it is in this type of account.
The Principal also has a responsibility to ensure that the client is protected so they are required to ‘cover’ the premium it anticipates the property manager will have collected to pay forthcoming premiums. Regular notification of what has been collected is required so that it can be reconciled against the estimation.
Risk transfer is the insurance company accepting that payment to their agent is payment to them, again protecting the customer. Some principals are fortunate in securing confirmation from their insurers that Risk Transfer can be ‘cascaded’ down to Appointed Representatives’.
This is another benefit of having a Principal who looks after the interests of their Appointed Representatives as this means their customers money is protected on both counts.
As statutory regulation has been in place for more than two years intermediaries should have their compliance position in place but it is possible to change if the one you chose originally does not suit your requirements. If you are planning a new business which involves insurance mediation research the options thoroughly and decide which one will suit your business.
If a customer is ‘introduced’ they are, in effect, also a direct customer so again it is straightforward.
Introducing on a ‘casual’ basis is not a regulated activity, but a formal arrangement involving remuneration in any form requires a business arrangement to be in place and the relationship notifying to the FSA. Firms cannot mix and match and be Appointed Representatives for one principal and an Introducer to another.
Fully authorised intermediaries can arrange policies for customers through other fully authorised intermediaries and be supplied with the policy documentation necessary e.g. policy summaries, certificates and schedules, but the status disclosures, terms of business and Demands and Needs would be their own i.e. the customer facing party delivers the compliance. The insurance provider must ensure that the intermediary who is the ‘customer facing party’ is provided with all that is needed in the way of information and documentation that is necessary for them to meet their regulatory obligations.
Similarly an Appointed Representative has to deliver the compliance, but the principal is ultimately responsible for it and certainly responsible if it is not delivered.
A principal has responsibilities where Appointed Representatives are concerned. They must ensure that an Appointed Representative is ‘fit and proper’ to deal with customers and the business is viable. There must be checks and resources in place to monitor that the Appointed Representatives are compliant and remain so. The FSA have to be informed of any changes to their details or activities.
Similarly an Appointed Representative has responsibilities. They must understand and comply with the FSA rules. They must be prepared to allow the principal to have access to their premises, records and staff and provide all the assistance the principal needs to fulfil its responsibilities. They must abide by the written contract that sets out the rights and duties of each party under that FSA regulations.
Appointed Representatives are not allowed to hold client money but property managers can collect service fees that includes insurance premium and hold it in a ‘client account’ which is a statutory account that complies with the ‘CASS’ [client’s assets] Rule 5.3. This type of account ensures the client’s money is protected. Royal Institute of Chartered Surveyors members already met this requirement so the FSA agreed that property managers who met the RICS standard are not required to have another account. Due to the protection offered by a statutory account the FSA will allow the ‘co mingling’ of insurance money with other ‘client money’ if it is in this type of account.
The Principal also has a responsibility to ensure that the client is protected so they are required to ‘cover’ the premium it anticipates the property manager will have collected to pay forthcoming premiums. Regular notification of what has been collected is required so that it can be reconciled against the estimation.
Risk transfer is the insurance company accepting that payment to their agent is payment to them, again protecting the customer. Some principals are fortunate in securing confirmation from their insurers that Risk Transfer can be ‘cascaded’ down to Appointed Representatives’.
This is another benefit of having a Principal who looks after the interests of their Appointed Representatives as this means their customers money is protected on both counts.
As statutory regulation has been in place for more than two years intermediaries should have their compliance position in place but it is possible to change if the one you chose originally does not suit your requirements. If you are planning a new business which involves insurance mediation research the options thoroughly and decide which one will suit your business.
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