A firm that specialises in all classes of professional indemnity has been hit with a £2,632,000 penalty.

The Financial Conduct Authority has today fined Towergate Underwriting Group for “failings in relation to its protection of client and insurer money”.

Had the business failed to agree to settle at an early stage of the investigation, the penalty would have been £3,760,000.

The FCA has also fined former Towergate Client Money Officer and director Timothy Philip £60,000 and banned him from having direct responsibility for client and insurer money.

Towergate, an insurance intermediary which holds both client and insurer money, accumulated a shortfall of £12.6 million in its client and insurer money bank accounts which, due to systems and controls weaknesses, went undetected for a number of years, according to the FCA.

The failings by Towergate took place between June 2005 and December 2013.

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."

The FCA statement read: “The weaknesses in Towergate’s controls contributed to several distinct failings, including: 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.”

“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.

“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.”