The Financial Conduct Authority (FCA) has fined Towergate Underwriting Group Limited £2,632,000 (C$4,500,000) for failings in relation to its protection of client and insurer money. According to an FCA release, Towergate, which holds both client and insurer money, accumulated a shortfall of £12.6 million (C$21,500,000) in its client and insurer money bank accounts which, due to systems and controls weaknesses, went undetected for a number of years.
The FCA has also fined former Towergate Client Money Officer and CF1 (director) Timothy Philip £60,000 (C$100,000) and banned him from having direct responsibility for client and insurer money.
Mark Steward, Director of Enforcement and Market Oversight at the FCA said: “We have issued repeated warnings to the industry on the importance of complying with client money rules which are designed to ensure that client money is adequately protected in the event of a firm failing. There can be no excuses given these warnings and the stakes involved. In addition, the firm’s failings placed insurer money at risk of loss.
“Senior management are ultimately responsible for ensuring that firms are following our rules and it is very clear that Mr Philip failed in that regard, falling well below the standards we require.”
In response, Towergate has taken full responsibility and agreed to pay the fine with John Tiner, the company’s chairman, issuing the following message.
“While this issue is historic, isolated, and had no financial impact on any clients or insurer partners, it does not excuse the fact that the company failed to live up to the high standards we expect of ourselves at Towergate and we deeply regret it occurred,” he said.
“The company fully accepts the conclusions reached by the FCA, and the board is pleased that the Regulator has recognised the company’s transparency and assistance throughout the process. Since identifying the issue, we have made a number of fundamental changes to our governance and control environment.
“The FCA findings allow us to close the matter, and maintain our focus on continuing to build a better business.”
The failings by Towergate took place between June 2005 and December 2013 with several failings highlighted in the FCA statement as follows:
1. On four occasions sums totalling £10.5 million were transferred from Towergate’s client money and insurer money bank accounts to the office bank account of an intermediate parent company. However, Towergate failed to properly consider the implications of these transfers which resulted in accumulated deficits of £5 million in the client money bank accounts and £5.5 million in its insurer money bank accounts.
2. As part of its arrangements with clients Towergate is permitted to retain all interest on balances held on client money bank accounts. Any interest earned on client money is therefore Towergate’s money and should be removed from client money bank accounts. Towergate’s banking practices should have meant that interest did not accrue on these accounts; however on a number of occasions from June 2005 to October 2011, it did, and this was not identified by the firm until 2013. This resulted in there being a total of £1.45 million of interest belonging to Towergate that was not removed from client money bank accounts.
3. In October 2007 the firm transferred £2.13 million from a client money bank account to an insurer money bank account. That transfer was not reflected accurately in the accounting records which led to the sum being transferred again in January 2009 creating a £2.13 million shortfall in its client money bank account.
4. From December 2008, in breach of its agreements with insurers, Towergate changed the basis upon which it removed commission owed to it by insurers from its insurer money bank accounts. This resulted in a £3.6 million deficit in Towergate’s insurer money bank accounts.
Towergate first identified there was a shortfall in its client money and insurer money bank accounts in May 2013. However, it took until October and November of that year to make good the shortfall despite CASS Rules requiring any shortfall to be corrected on the day the firm performed its client money calculation. Towergate also failed to report the shortfall immediately to the FCA.
Despite the failures there was no actual loss of client or insurer money and Towergate did in time rectify the shortfall. However, had the firm become insolvent during the period when the shortfall existed, insurers were at risk of losing money and may have experienced complications in recovering their money.
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