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CASS 5.2 Holding money as agent of an insurance undertaking

Introduction

CASS 5.2.1GRP

If a firm holds money as agent of an insurance undertaking then the firm's clients (who are not insurance undertakings) will be adequately protected to the extent that the premiums which it receives are treated as being received by the insurance undertaking when they are received by the agent and claims money and premium refunds will only be treated as received by the client when they are actually paid over. The rules in CASS 5.2 make provision for agency agreements between firms and insurance undertakings to contain terms which make clear when money should be held by a firm as agent of an undertaking. Firms should refer to CASS 5.1.5 R to determine the circumstances in which they may treat money held on behalf of insurance undertakings as client money.1

CASS 5.2.2GRP
  1. (1)

    Agency agreements between insurance intermediaries and insurance undertakings may be of a general kind and facilitate the introduction of business to the insurance undertaking. Alternatively, an agency agreement may confer on the intermediary contractual authority to commit the insurance undertaking to risk or authority to settle claims or handle premium refunds (often referred to as "binding authorities"). CASS 5.2.3 R requires that binding authorities of this kind must provide that the intermediary is to act as the agent of the insurance undertaking for the purpose of receiving and holding premiums (if the intermediary has authority to commit the insurance undertaking to risk), claims monies (if the intermediary has authority to settle claims on behalf of the insurance undertaking) and premium refunds (if the intermediary has authority to make refunds of premium on behalf of the insurance undertaking). Accordingly such money is not, except where a firm and an insurance undertaking have in compliance with CASS 5.1.5A R agreed otherwise, 1client money for the purposes of CASS 5.

  2. (2)

    Other introductory agency agreements may also, depending on their precise terms, satisfy some or all of the requirements of the type of written agreement described in CASS 5.2.3 R1. It is desirable that an intermediary should, before informing its clients (in accordance with CASS 5.2.3 R (3)) that it will receive money as agent of an insurance undertaking, agree the terms of that notification with the relevant insurance undertakings.

Requirement for written agreement before acting as agent of an insurance undertaking

CASS 5.2.3RRP
  1. (1)

    A firm must not agree to:

    1. (a)

      deal in investments as agent for an insurance undertaking in connection with an insurance distribution activity3; or

    2. (b)

      act as agent for an insurance undertaking for the purpose of settling claims or handling premium refunds; or

    3. (c)

      otherwise receive money as agent of an insurance undertaking;

    unless:

    1. (d)

      it has entered into a written agreement with the insurance undertaking to that effect; and

    2. (e)

      it is satisfied on reasonable grounds that the terms of the policies issued by the insurance undertaking to the firm's clients are likely to be compatible with such an agreement; and

    3. (f)
      1. (i)

        (in the case of (a)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving premiums from the firm's clients; and

      2. (ii)

        (in the case of (b)) the agreement required by (d) expressly provides for the firm to act as agent of the insurance undertaking for the purpose of receiving and holding claims money (or, as the case may be, premium refunds) prior to transmission to the client2 making the claim (or, as the case may be, entitled to the premium refund) in question.

  2. (2)

    A firm must retain a copy of any agreement it enters pursuant to (1) for a period of at least six years from the date on which it is terminated.

  3. (3)

    Where a firm holds, or is to hold, money as agent for an insurance undertaking it must ensure that it informs those of its clients which are not insurance undertakings and 1whose transactions may be affected by the arrangement (whether in its terms of business, client agreements or otherwise in writing) that it will hold their money as agent of the insurance undertaking and if necessary the extent of such agency and whether it includes all items of client money or is restricted, for example, to the receipt of premiums.

  4. (4)

    A firm may (subject to the consent of the insurance undertaking concerned) include in an agreement in (1) provision for client money received by its 1appointed representative, field representatives and other agents1 to be held as agent for the insurance undertaking (in which event it must ensure that the representative or agent 1provides the information to clients required by (3)).

CASS 5.2.4GRP

Firms are reminded that CASS 5.1.5A R1 provides that, if the insurance undertaking has agreed in writing, 1money held in accordance with an agreement made under CASS 5.2.3 R may be treated as 1client money and may (but not otherwise) 1be kept in a client bank account.

CASS 5.2.5GRP

A firm which provides for the protection of a client(which is not an insurance undertaking) 1under CASS 5.2 is relieved of the obligation to provide protection for that client under CASS 5.3 or CASS 5.4 to the extent of the items of client 1money protected by the agency agreement.

CASS 5.2.6GRP

A firm may,1 in accordance with CASS 5.2.3 R (4), arrange for an insurance undertaking to accept responsibility for the money held by its appointed representatives, field representatives, and other agents, in which event CASS 5.5.18 R to CASS 5.5.25 G will not apply.1

CASS 5.2.7GRP

A firm may operate on the basis of an agency agreement as provided for by CASS 5.2.3 R for some of its clients and with protection provided by a client money trust in accordance with CASS 5.3 or CASS 5.4 for other clients. A firm may also operate on either basis for the same client but in relation to different transactions. A firm which does so should be satisfied that its administrative systems and controls are adequate and, in accordance with CASS 5.2.4 G, should ensure that money held for both types of client and business is kept separate.