Brokers will struggle to cope if new client monies accounting rules, currently under consideration, are implemented by the FSA (Financial Services Authority), says Michael Graham, Sales and Marketing Director at insurance software specialists Sequel. He predicts they will have difficulties because they don’t yet have the right tools in place to handle compliance change with ease.
The FSA is considering calling on brokers to replace the widely used simple accounting model (accruals) with the client balance accounting method. The client balance accounting method requires transactions to be managed on a principal-to-principal basis, not simply tracking money received or paid. It aims to reduce potential points of failure in the complicated and risk laden client monies handling process.
“I estimate that a third of large and medium sized brokers will have great difficulties moving across to the client balance method, should the FSA call for market change. Handling client monies shouldn’t be one of the major distractions for so many firms,” says Graham. “The prospect of such a rule change will keep significant numbers of brokers awake at night - typically firms with ageing and unfit systems. And their worries will quickly become nightmares if they have to implement the proposed accounting method as they’ll have to divert resources from their core business to cope. This is the last thing they need as the market becomes increasingly more competitive. But while some might worry and struggle, others will be well placed to make light work of the new rules.
“Forward thinking brokers will take such accounting changes in their stride – and in their own time. They’ve invested in proven, powerful and modern systems that make light work of new developments in compliance,” Graham continues.
“They can do this so easily because they’ve adopted the right kind of software tools to get the job done to all stakeholders’ satisfaction. This is good for their clients, good for their reputation and good for building their business. It’s an approach that allows them to progress without distraction and it keeps them ahead in a demanding, highly competitive and constantly changing market place,” Graham concludes.
Client money is money that a firm receives and holds for a client or clients of appointed representatives. The FSA (Financial Services Authority) insists that firms arrange adequate protection for clients’ money that they hold such as premiums, claims money, premium refunds and fees. The client monies handling process - involving tracking, holding, accessing, documenting and processing is one of the fundamentals of modern broking.