Financial Conduct Authority (FCA) offices

Towergate Underwriting Group Limited (Towergate), a UK-based insurance intermediary that holds both client and insurer money, has been fined by the country’s financial watchdog for failing to ring-fence its client and insurer money.

The Financial Conduct Authority (FCA) imposed a fine of more than £2.6 million on Towergate for racking up £12.6 million in deficits in its client and insurer money bank accounts.

The shortfall went unnoticed from 2005 to 2013 due to “systems and control weaknesses”, FCA said.

According to the regulator, Towergate failed to abide by the Client Asset Sourcebook (CASS) Rules and FCA’s Principles 3 and 10 of Business.

The main goal of CASS Rules is to adequately safeguard client money in the event of a company’s insolvency.

It requires companies to separate client money from company money in segregated client money bank accounts.

Principle 3 requires companies to organise and control their activities responsibly and effectively and have adequate risk management systems in place, while Principle 10 calls for adequate protection for clients’ assets.

FCA discovered that Towergate transferred a total of £10.5 million of client and insurer money to its parent company’s bank account, failing to consider the implications of these transfers.

Its client funds also accrued £1.45 million in interest payments, an amount that actually belonged to Towergate as per customer agreements.

The company first detected deficits in May 2013, but made necessary actions only until October and November. It also failed to report the issue immediately to the financial watchdog.

CASS Rules require any deficit to be corrected on the day it is noticed.

FCA also fined Towergate’s former Client Money Officer Timothy Philip and barred him from holding similar position.

The regulator said Phillip failed to exercise due skill, care and diligence in managing the business.

Despite the failings, there was no actual loss of money and the company was able to make good of the shortfall in time.

However, insurers were at high risk of losing money had Towergate went broke during that time, FCA said.

Both Towergate and Mr Philip qualified for a 30 percent off their fines as they agreed to settle at an early stage.

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,” Mark Steward, Director of Enforcement and Market Oversight at the FCA, said in a news release.

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,” he added.

Early last year, Towergate was taken over by its creditors after almost running out of cash. Since then, it has made fundamental changes including hiring a new executive team.


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