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24 March 2010 Insurance Premium Tax – Latest News
The Pre-Budget Report – issued in December 2009 – raised the spectre of bringing certain fees charged under a
separate contract in connection with personal lines insurance into the scope of IPT. The wording employed was
imprecise, and open to an interpretation that many broker fees would be chargeable.
In this week’s budget, the legislation has been clarified, and it is clear that most broker fees will not be included
within the scope of IPT. Those that are will be akin to those which were charged by Homeserve, and which gave
concern in the first place to the Revenue that IPT was being avoided by classifying “premium” as “fee”
The change applies to payments made on or after 24th March 2010
The vast majority of cases it will be applicable to consumers not commercial clients
Situations not covered by this IPT charge on Fees.
- Commercial cases
- Cases where the insurance is underwritten, and the assessment of risk determines premium, terms
and/or conditions
- Fees for extended credit
Situations covered by this IPT charge on Fees.
- Non-commercial cases
- No underwriting
- It now appears that not only inception and renewal will be affected, but also Mid-Term Adjustments.
However, as cases are not underwritten, it is unlikely that MTAs will apply
The following classes of insurance spring to mind (no doubt there are others):
GAP and related products (Return to Invoice)
Legal Protection
ULR
Tyre/MOT/Keys
Motor Breakdown
Mobile Phone (including Unauthorised Calls)
23 February 2010. FSA has reminded insurance intermediary firms that they must have adequate financial resources at all times. The message is conveyed in a letter sent to large insurance intermediaries, which is also available to smaller insurance intermediaries via the FSA website. The letter says the FSA is particularly concerned about this issue in view of the continuing challenging business environment. It says that insurance intermediary firms who have not recently undertaken a financial resources assessment should do this, and if they are not complying with the requirement to have adequate financial resources, they should immediately strengthen their financial position. The letter adds that firms should be in a position to share their current assessment of the adequacy of their resources with the FSA on request. The requirement for regulated firms to have adequate resources, including financial resources, at all times is set out in Threshold Condition 4 in the FSA Handbook.
25 February 2010. Biba has warned brokers after the government stepped up plans to impose heavy fines for data security breaches. Under the reforms, approved by Secretary of State Jack Straw, the Information Commissioners' Office will be able to impose fines of up to £500,000 on companies that leak data as of 6 April. The fine will vary depending on the size of the organisation at fault. The government's decision to strengthen its stance comes in the light of several high profile cases of data loss from various government departments, including the DVLA. Since November 2007 there have been 235 data security breaches reported to the ICO from the private sector. In July 2009, the Financial Services Authority fined HSBC Insurance Brokers £700,000 for data security breaches.
Client Money
The FSA have written one of their “Dear CEO” letters to a investment and insurance broking firms. This is one way they have of communicating their concerns to the market.
Their focus has been on client money for some time. They see this as an area of potential consumer detriment as the money makes its way from consumer to insurer. They raised these concerns again due to their assessment of the economic climate and an increased risk of intermediary firms becoming insolvent in their 2009 Financial Risk Outlook. They created a CASS Risk team in March 2009. They are a team of specialist supervisors who are tasked with the measurement and mitigation of risks to client money and assets.
Also in March 2009 they wrote a “Dear Compliance Officer” letter explaining firms’ obligations to protect their clients’ money and assets and promising a series of visits. These visits they have completed in the last six months and the findings do not make good reading.
They found weaknesses and issues in
- poor management oversight and control;
- lack of establishment of trust status for segregated accounts;
- unclear arrangements for the segregation of client money and
- incomplete or inaccurate records, accounts and reconciliations.
These failings have led to enforcement actions; skilled person reports, two Enforcement Referrals and a number of other firms under active consideration for Enforcement Referrals, private warnings, a freeze on assets, a ban on the use of Appointed Representatives and a ban on taking on new business
Their conclusion us that compliance with CASS (the Client Money and assets section of the Handbook) across the industry is poor. They have initiated remedial work at a number of firms and expect this number to increase during 2010 since the protection of client money and assets will continue to be a regulatory priority in 2010. Specialist visits will continue throughout the coming year.
They anticipate increasing the enforcement resources they devote to client asset cases and our investigations will consider the conduct and competence of Approved Persons as well as the firms themselves. The case of Fabien Risk Services illustrates this with two Directors and the Office Manager banned for the misuse of client money.
FSA’s key findings:
- Inadequate senior management oversight and control was often the underlying cause of more serious CASS breaches.
- Overly complex processes around client money and assets led to an increased risk of human error.
- Operational and systems changes during transitional periods posed a high risk of segregation errors.
- Unclear allocation of duties by senior management led to confusion between staff or a lack of accountability.
- Client money processes had in some cases been delegated too far, leading to a lack of senior level responsibility and accountability.
- There were inconsistencies between Terms of Business Arrangements (TOBAs) and client money calculations.
- Review and sign-off processes surrounding client money calculations and reconciliations were not always evidenced.
- Some firms had failed to perform sufficient due diligence to assess client money risks arising from an acquisition.
- Whilst Non-statutory trust bank accounts can be used to extend credit for funding insurers’ and clients’ normal insurance transactions, client money was being utilised for other purposes.
- Unallocated cash and legacy balances were not being reduced promptly enough.
- Firms over-relied on CASS audit reports rather than perform their own checks.
Nearly all of their visits resulted in actions for firms to improve their compliance with CASS. They insist that the actions they have taken so far show that their tolerance level for CASS compliance failures is low. In line with this, they are to continue to take a more intrusive approach to the protection of clients’ money and assets
CASS visits to follow-up on specific issues and risks will carry on throughout 2010. Now is a very good time to review to review your client money arrangements. For example:
- Review whether risk transfer agreements mean you are not holding client money all.
- Review the controls you have in place. How far down are the tasks delegated? Is oversight sufficient?
- A theme running through the report is the lack of evidence. Check you have an exchange of letters with your Bank(s). If you have a Non-Statutory Trust do you have a copy of the Board minute?
- Keep copies of all your Client Money reconciliations and also your Bank Account Reconciliations.
- Do you need a Client Asset Report from an auditor?
- Review unallocated cash and legacy balances