Timothy Philip has been fined £60,000 and prohibited from carrying out roles involving handling of client and insurer money in the future. The Financial Conduct Authority (FCA) also imposed a fine of £2,632,000 on Towergate Underwriting Group, the firm of which Mr Philip was a director.
Insurance intermediary firm Towergate not only accumulated a combined shortfall of £12.6 million in its client money and insurer money accounts, but in addition this shortfall went undetected for a number of years owing to the firm’s inadequate systems and controls. The failings at the firm lasted for a period of eight and a half years from June 2005 to December 2013.
When a shortfall was finally noticed in May 2013, it took Towergate six months to rectify it – a clear breach of FCA rules which require shortfalls to be corrected on the day client money calculations are carried out. The firm also failed to notify the FCA of the issues at this stage.
Some of Towergate’s money transfers were in breach of the firm’s agreements with insurers, while others were not correctly recorded in the firm’s accounting records. The lack of proper records led to a £2,130,000 transfer between the client and insurer accounts being made twice, as the firm was unaware of having made the payment.
Mr Philip had specific responsibility for the client and insurer money accounts, and on four occasions he instructed or approved withdrawals without following the documented processes and procedures. He also failed to identify and manage risks resulting from the firm’s money handling operations. The FCA has thus concluded that he is not a fit and proper person.
The FCA’s rules require firms to ring-fence client money. As a result of Towergate’s failure to do so, the firm actually accumulated an additional £1,450,000 of interest in its main company bank accounts.
Although Towergate and similar firms are not yet subject to the Senior Managers & Certification Regime, this episode suggests that the era of the FCA holding individuals to account for shortcomings in their area of responsibility has already arrived.
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.”
Press reports suggest Towergate came close to running out of cash during 2015.
Towergate’s chairman is former Financial Services Authority boss John Tiner, although he was not connected with the firm at the time of the wrongdoing.
Reacting to the enforcement action behalf of Towergate, Mr Tiner said:
“While this issue is historic, isolated, and had no financial impact on any clients or insurer partners, it does not excuse the fact that the company failed to live up to the high standards we expect of ourselves at Towergate and we deeply regret it occurred.
“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.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.