The Financial Services Authority (FSA) has criticised the UK’s insurance and investment industry for failing to safeguard client money and announced that it is investigating two businesses and has frozen the assets of a third over the issue.
In a report published today, the FSA said compliance with client money segregation rules is “poor across the industry”.
The rules, designed to protect clients’ money if the business they have invested with collapses, have become a priority for the FSA since the fall of Lehman Brothers and the financial crisis. The rules are compulsory and require client funds to be held in segregated accounts that are legally separate from the insurer or investment manager.
The FSA said that inadequate control from senior management was often the underlying cause for client money failings that also included poor record keeping.
The watchdog said that after visiting several insurers and investment managers it had referred two firms to its Enforcement Division, which can fine and ban companies or the individuals for breaking FSA rules. It declined to name the firms involved or provide further details on the third firm whose assets have been frozen.
Advertisement
The FSA said it had “a number of other firms under active consideration” for referrals to Enforcement.
In November, the FSA fined UBS £8 million for weak controls that allowed staff in its private bank to make thousands of unauthorised trades with clients’ money and then hide the losses. It was the third-largest fine awarded by the FSA.
In a letter sent to chief executives of major insurance and investment firms, Sally Dewar, FSA head of risk, said: “We have already taken regulatory action where firms have not complied with our requirements. This intensive supervision will persist and we will continue to take action where we believe that client assets are not sufficiently protected.”
Client money failings in the European arm of Lehman Brothers have led to a series of lawsuits as former clients attempt to recover money and assets that were not properly segregated when the bank entered administration.