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Information about Security Bonds

What is ‘Security’ and why is it necessary?

It is the responsibility of the OCP to ensure every Patient’s funds are protected. Therefore before appointment, and throughout the duration of their appointment, all Controllers / Authorised Persons are required to provide evidence that they have obtained ‘security’ to cover the extent of the Patient’s funds that they will be given authority to manage.

Security is a type of insurance or guarantee to protect the Patient from any inappropriate or unauthorised use of their funds.

If a Controller / Authorised Person mis-uses or misappropriates the Patient’s money and cannot or will not pay it back, the security provided by the Controller / Authorised Person will be used to ensure the Patient does not suffer a loss.

It should be emphasised that the provision of security is a legal requirement to protect the financial interests of the Patient and is not intended to call into question the integrity of individual Controllers or Authorised Persons.

How do I provide security?

There are various methods by which security may be given and these are set out in Order 109, Part XII, Rule 52 of the Court of Judicature Rules [Northern Ireland] 1980. This Rule states:
52. - (1) Subject to any directions of the Court, security may be given, in any of the following ways or partly in one of those ways and partly in another-
(a) By a bond approved by the Court and given by the person giving security and also by-
(i) an insurance company, group of underwriters or bank approved by the Court; or
(ii) with the approval of the Court, two personal sureties; or
(b) by lodging in court a sufficient sum of money or stock; or
(c) in such other manner as the Court may approve.

In the vast majority of cases, Controllers and Authorised Persons choose option (a) and what is known as a security bond is taken out with a Guarantee Company.

The annual premium for this security bond is payable from the Patient’s funds.

Prior to the appointment of a Controller / Authorised Person, OCP will write to the those about to be appointed to provide advice on how to obtain security. A list of guarantee companies will be provided by OCP, but the choice of provider is a matter for the Controller / Authorised Person.

The Court will decide the value of the security bond required. As there may be fluctuation in the value of a Patient’s funds during the term of the bond, OCP will normally add an additional 25% to the current value of the Patient’s assets when calculating the amount of security required. This is to ensure the Patient is fully protected.

Important information for Controllers and Authorised Persons

The security given by the bond is solely for the protection of the Patient and there is no protection for the Controller or Authorised Person. Security must provide assurance that the protection for the Patient is robust and continuous throughout the controllership.

Controllers / Authorised Person should understand the following important points:

  • The amount of security required is set by the Court / OCP;
  • Neither the OCP nor the Court are a party to the bond, it is between the Controller / Authorised Person and the bond provider;
  • The choice of which guarantee company to use is a matter for the Controller / Authorised Person;
  • It is the duty of the Controller / Authorised Person to ensure bond premiums are paid in a timely manner;
  • The payment required for the bond premium is recoverable from the Patient’s funds;
  • OCP / the Court has no influence over the premium charged or terms of the bond.

Enforcement

If Controllers / Authorised Persons fail in their duties, the bond can be enforced / called in. Controllers / Authorised Persons should understand the following:

  • The Court can call in all or part of the bond up to the limit secured;
  • There is no requirement to prove fraud and the loss may not be quantifiable;
  • The Court may order an interim payment, i.e. that part of the bond is called in pending quantification of the loss;
  • The bond provider must pay on demand without further investigation;
  • Notification will be via a Court Order;
  • Bond providers have the right to recover the amount they have paid out, plus their expenses, from the Controller / Authorised Person. This is a matter for the insurer and in which the OCP or Court play no part.

Controller / Authorised Person wishing to change provider

Where a Controller / Authorised Person changes bond provider or changes the terms of their current bond, they are required to inform the OCP immediately.

Changes to the Amount of Security

Controller / Authorised Person should understand the following:

  • The Court can change the amount of security required at any time. This is most common where an application is made to increase the Controller’s / Authorised Person’s access to funds.
  • The Controller / Authorised Person should note that although a 25% uplift is included in the calculation of the sum to be insured to protect fluctuations in Patient funds, they are still required to notify OCP immediately if a Patient’s funds increase or decrease substantially. Examples of funds increasing include money obtained from an inheritance, gift or compensation monies.

Exchange of Information

There are requirements for exchange of information in respect of security. The OCP would expect information sharing between the bond provider, Controller / Authorised Person and itself. Sharing of information is expected in regard to notification of a bond being put in place, the cessation of a controllership, enforcement of bonds, and information in regard to non-payment of premiums.

Complaints

The OCP expects bond providers to set out a clear complaints procedure, available on its website, which meets the requirements of both the Financial Services Authority and Financial Ombudsman Service.