The FSA has fined General Reinsurance UK £1.225m for arranging two improper reinsurance transactions.
The regulator says it breached principle 2 by not conducting its business with due skill, care and diligence and principle 3 by not organising and controlling its affairs responsibly and effectively.
The first transaction was signed in 1999 and then renewed three times until 2003 and enabled a German insurer to gain tax benefits by transferring money between Germany and Ireland, where the insurer had a subsidiary.
The second transaction was signed in 2004 and was used to compensate for premium reduction on a reinsurance programme agreed with a client insurer by GenRe UK.
In both cases the FSA says it found GenRe UK did not have sufficient systems and controls in place to prevent the transactions being signed.
The underwriting, accounting and compliance functions in respect of the transactions were inadequate and the transactions were not fully assessed and monitored, says the regulator.
The FSA has accepted an undertaking from a former employee of GenRe UK not to apply for authorisation to carry on controlled functions for two years and to undertake an FSA approved training and mentoring programme.
By settling early GenRe qualified for a 30 per cent discount, without which the fine would have been £1.75m.
FSA director of enforcement Margaret Cole says: “The FSA expects firms involved in reinsurance business to observe proper standards of conduct, act with due skill, care and diligence and to ensure that they and their staff structure and manage transactions appropriately.
Both conventional and finite reinsurance transactions should only be used where there is a legitimate commercial purpose and sufficient risk transfer. The FSA will take robust action against reinsurance firms and their staff who act in contravention of these basic principles.”