A matter of trust

There are two key points to check your company's status against. First, this applies to firms that do not hold the permission to hold client money. Second, if you ever charge fees for your services, they are normally treated as client money, and would be a breach of regulation to pay such money into an insurer trust account.

If you do charge fees, then you need to arrange for clients to pay the fee in a separate cheque from the premium, or ensure that you have the permission to hold client money, and co-mingle in a client trust account. Amounts are not an issue. You only have to bank a 'mixed remittance' - as a mix of insurer and client money is called - once a year to make an insurer trust account an incorrect vehicle for the banking of premium monies.

The account will be set up in the same way as a client non-statutory trust account. You need to execute a trust deed and send a copy to every insurer you deal with, and obtain their acceptance of the arrangement. You also need to exchange letters with your bank confirming the status of the new account. Biba members can access these documents from its website.

For those choosing risk transfer as a way of saving administrative work, the insurer trust also requires you to carry out monthly reconciliation, but your firm's regulatory capital requirement will be reduced to 2.5% of income or £5000, whichever is higher.

Before you make any changes, check these issues with your firm's compliance officer, or consultant, as only generic advice can be given in this column and your own firm's circumstances will need to be evaluated.