London-based BPS also used client money to pay its general expenses, further increasing the deficit.
Chief executive officer Robert James and directors Stuart Lawton and Paul Adams were found not fit and proper to carry out certain regulated financial services functions, including senior management.
During a routine visit in April 2005 the FSA discovered that all three had “continually failed to admit to the deficit from the time when they originally applied for authorisation”.
BPS went into administration in May 2005
The FSA established that all three men knew that they should have informed the regulator about the deficit and that they were misusing client money.
The regulator says while no clients were directly affected, there was a risk that the directors’ actions could have left clients without the cover they had paid for.
Head of retail enforcement Jonathan Phelan says: “The directors of BPS acted recklessly and without integrity. They failed to ensure that clients’ money was adequately protected and undermined consumers’ confidence in the insurance sector.
“Senior managers must recognise their responsibilities – they are personally responsible and the FSA will take action against directors who fail to act appropriately when carrying out their regulatory functions.”