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Ban on companies using insurance to cover fines

The FSA has confirmed that it will ban firms and individuals from using insurance to pay regulatory fines under new rules approved late last month.

The changes, which came into effect on January 1, are intended to ensure that companies and individuals pay the fines themselves rather than claiming it against insurance.

The regulator has been contemplating the move since last July and brought the new rules in after a month of heavy fines aimed at some of the UK&#39s biggest institutions.

It slapped a record £2.32m fine on Abbey for failing to maintain effective money-laundering controls. Chase de Vere Financial Solutions has been fined £165,000 over misleading marketing on structured products and high-income bond promotions and Friends Provident got a £675,000 penalty over mortgage endowments.

Companies such as Aberdeen Asset Management have taken out substantial insurance cover, expecting to use the cover against potential fines from the FSA&#39s split-cap investigation.

FSA counsel general Andrew Whittaker says: “Insurance to pay FSA fines undermines their impact as an incentive to good conduct. This move will improve the effectiveness of regulation by closing that loophole.”

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