FCA has fined five individuals and two firms a total of £15.5 million, and banned four of the individuals, for significant integrity and competence failings in relation to solicitors’ professional indemnity insurance and other insurance schemes’ failures:
- FCA found Shay Reches had masterminded the failed schemes. He performed the CF1 (Director (AR)) controlled function at Coverall Worldwide Limited (Coverall), an insurance broker, with responsibility for a managing general agent, Aderia UK Limited, and conducted regulated activities central to setting up and operating these insurance schemes, but was not FCA approved to do so. FCA found he recklessly directed payments of insurance premiums to parties other than the insurers and reinsurers responsible for paying claims, increasing the risk that policyholders’ claims would not be paid. This misconduct contributed to the failure of several insurance schemes as well as to three insurers going into administration. As a result FSCS had to pay claims totalling £12.7 million as at the end of 2015. FCA fined Mr Reches £1.05 million and he has also agreed to pay a sum of £13.1 million to the three insurers as a contribution towards the liabilities to the FSCS and UK policyholders. FCA has also banned Mr Reches from performing any function in relation to any regulated activity.
- FCA fined Coverall £36,800 and cancelled its authorisation for recklessly failing to mitigate the risks to policyholders arising from the contracts entered into by Aderia, failing to take reasonable care to ensure that it established and implemented adequate controls over its appointed representative, and failing to arrange adequate protection for client money. It also fined Robert Bygrave, Coverall director with responsibility for managing Aderia’s finances, £37,400 and banned him from undertaking any FCA significant influence functions, and fined Andrea Sadler, Coverall director with responsibility for managing Aderia’s day-to-day operations, £18,700 and banned her from undertaking any FCA significant influence functions. Among other failings, these individuals took instructions from Mr Reches when he should not have been giving those instructions.
- FCA publicly censured Bar Professions Limited (Bar) (now in liquidation), a specialist London-based insurance broker predominantly providing solicitors’ PII. FCA found it negligently failed to conduct adequate due diligence concerning insurance arrangements for policyholders and sent a letter to over 1,300 customers inducing them to enter into contracts of insurance on the basis of materially inaccurate and misleading information. FCA fined Wayne Redgrave, a director and the controller at Bar, £38,600, for being personally responsible as director and the main decision maker at Bar for its failings, including that he drafted and signed the customer letter.
- FCA and PRA together investigated Millburn Insurance Company Limited (Millburn), and Colin McIntosh, its CEO. Millburn, a small general insurer, entered into an agreement with a managing general agent which allowed the agent to write business on Millburn’s behalf. The agreement failed to include appropriate contractual restrictions on the type of business that could be underwritten or management information requirements. Millburn also arranged for all business written during this period to be reinsured by a single reinsurer. Millburn was therefore highly exposed to the risk that the reinsurance might not perform as expected. When the reinsurer stopped paying claims, Millburn’s capital resources were insufficient to mitigate that non-payment and, in turn, Millburn became unable to pay its own policyholders. PRA banned Mr McIntosh from holding any controlled functions at PRA-authorised firms and fined Millburn almost £2.9 million for inadequate due diligence and inappropriate systems and controls when arranging its reinsurance. FCA fined Mr McIntosh £51,600 and banned him from performing any FCA controlled functions, and fined Millburn £1,137,500 for failure to be open and honest with it. Milburn is now in administration. PRA said it would not enforce the fine if to do so would prejudice policyholders and FCA said its fine would rank behind the firm’s creditors.
FCA said the actions showed the validity of a number of its supervisory concerns around outsourcing in the general insurance industry. (Source: FCA Enforcements for Millburn and Coverall and PRA Enforcements for Millburn)