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FCA takes disciplinary action against individuals and firms

The Financial Conduct Authority (FCA) has fined five people and three firms a total of £15.5 million, and banned four of the individuals, in relation to professional indemnity insurance and other insurance scheme failures. 02 Feb 2016

In a joint investigation with the Prudential Regulation Authority (PRA), the FCA fined Shay Reches of Coverall Worldwide (Coverall) for "recklessly" directing payments of insurance premiums to "parties other than the insurers and reinsurers responsible for paying claims". It said this had the effect of "increasing the risk that policyholders’ claims would not be paid".

This contributed to the failure of several insurance schemes as well as to three insurers going into administration, the FCA said. As of the end of 2015, the Financial Services Compensation Scheme (the FSCS) had paid out claims of £12.7m in total to account for the insurers' financial problems, the FCA said.

The FCA has fined Reches £1,050,000, and Reches also agreed to pay £13,130,000 to the three insurers.

Action was also taken against Colin McIntosh, Millburn Insurance Company Limited (Millburn), Coverall, Robert Bygrave, Andrea Sadler, Wayne Redgrave and Bar Professions Limited (Bar).              

Mark Steward, FCA director of enforcement said: "This was a hugely complex case with the FCA liaising with over 20 regulators and agencies around the world."

"Reches’ misconduct led to many solicitors and others being left without adequate insurance. He treated policyholders’ funds and their interests with reckless indifference and his misconduct was facilitated by an absence of proper controls by key persons at important stages of the insurance process. The FCA has also taken action against those responsible for poor controls and oversight," Steward said.

"This case not only demonstrates the consequences of poor controls but also what can happen when the distribution chain becomes overly complex, participants fail to ask obvious questions or take rudimentary precautions, including those insurance intermediaries and brokers checking whether Reches was approved to carry out the functions he was performing," he said.

The investigations followed concerns raised about the validity of solicitors’ professional indemnity insurance arranged for over 1,300 solicitors’ firms across England and Wales, the FCA said.

Financial services expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said: "The final notices reflect the FCA’s ongoing interest in not only regulated activities undertaken by unauthorised firms but also the roles and responsibilities of those within the regulatory chain, for example intermediaries and brokers. While each regulated firm has its own regulatory responsibilities the FCA has illustrated a willingness to consider where these responsibilities may overlap between firms and push the boundaries of who has previously been held responsible."

"Insurers, brokers, intermediaries and others are being held increasingly accountable for activities they may have previously considered the remit of someone else in the regulatory process. Not only should due diligence be undertaken regarding the entities with whom a regulated firm is doing business, but firms will increasingly look to clearly define who in the chain has responsibility for which actions, such as product creation, product sign off and the sales process," Ruck said.