FCA fines Towergate £2.6m for mishandling client cash

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The FCA has fined Towergate Underwriting Group £2.6m for mishandling client and insurer money.

The regulator says Towergate built up a shortfall of £12.6m in bank accounts meant to pay clients and insurers between June 2005 and December 2013.

Towergate’s “systems and controls weaknesses” meant this shortfall went undetected for years, according to the FCA.

The regulator says Towergate moved a total of £10.5m from its client money and insurer money bank accounts to the bank account of its parent.

An FCA statement says: “However, Towergate failed to properly consider the implications of these transfers which resulted in accumulated deficits of £5m in the client money bank accounts and £5.5m in its insurer money bank accounts.”

Towergate also wrongly let interest accrue on client money accounts between June 2005 and October 2011. Towergate did not realise until 2013.

This led to £1.45m of interest belonging to Towergate being blended with client money accounts.

Additionally, in October 2007 Towergate moved £2.13m from a client account to an insurer account.

But Towergate’s accounts did not show the move, which led to the money being transferred again in January 2009.

This created a £2.13m shortfall in its client money bank account.

In December 2008 Towergate broke its insurer agreements by changing the way it removed its commission from insurer money accounts. This led to a £3.6m deficit in these accounts.

Towergate realised the shortfall in its client and insurer bank accounts in May 2013.

But the firm did not repay the money until October and November 2015. This broke FCA rules requiring any shortfall to be repaid on the day the firm performs its client money calculation.

Towergate also failed to report the shortfall immediately to the FCA.

The FCA adds: “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.”

Towergate settled early with the FCA, letting it cut its FCA fine from £3.7m.

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

The FCA found Philip failed to exercise due skill, care and diligence in managing the business for which he was responsible.

Philip also settled early and got a 30 per cent discount on his original £85,817 fine.

FCA director of enforcement and market oversight Mark Steward says: “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.”

Towergate chairman John Tiner says: “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.”