FCA fines Towergate £2.6m

The regulator also fined Timothy Philip, a former director of the insurance broker, £60,000 and banned him from having direct responsibility for client and insurer money.

The fines come after Towergate accumulated a shortfall of £12.6m in its client and insurer money bank accounts, which, due to systems and control weaknesses, went undetected for a number of years.

The FCA found that Towergate failed to comply with CASS (Client Assets Sourcebook) Rules and Principles three and 10 of the FCA’s Principles of Business. This meant that Towergate had failed to take reasonable care to organise and control its affairs responsibly with adequate risk management systems.

The regulator revealed failings which showed that on four occasions sums totalling £10.5m were transferred from Towergate’s client money and insurer money bank accounts to the office bank account of an intermediate parent company.

Towergate failed to consider the implications of these transfers, which resulted in accumulated deficits of £5m in the client money bank accounts and £5.5m in the insurer money bank accounts.

The FCA also found that Towergate had transferred £2.13m from a client money bank account to an insurer money bank account. This was not reflected accurately in the accounting records leading to the sum being transferred again, which created a £2.13m shortfall in the client money bank account.

From December 2008, Towergate breached its agreements with insurers as it changed the basis on which it removed commission owed to it by insurers, which resulted in a £3.6m deficit in Towergate’s insurer money bank accounts. 

There was no actual loss of client or insurer money and Towergate did in time rectify the shortfall, however had Towergate become insolvent during the period when the shortfall existed, insurers were at risk of losing money.

Meanwhile, the FCA had found that on four occasions Mr Philip instructed or approved the withdrawals of money from the client and insurer money bank accounts without following the processes and procedures which were in place for making such withdrawals. This led to a £10.5m shortfall in the client and insurer money resource.

He also failed to adequately identify risks created by his departure from the established client and insurer money processes, and failed to meet the minimum regulatory standards in terms of competence and capability meaning he was not a fit and proper person to have direct responsibility for either client or insurer money.

“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,” stated Mark Steward, 
Director of Enforcement and Market Oversight at the FCA. 

“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.”

Both Towergate and Mr Philip agreed to settle at an early stage of the FCA investigation, which meant they qualified for a 30% discount on the fine. 

John Tiner, Chairman of Towergate, said whilst this issue was historic, isolated and had no financial impact on any clients, it did not excuse the fact the company had failed to live up to its high standards.

“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.”