The FSA has fined the London-based subsidiary of a Japanese insurance firm £3.3m for serious corporate governance failings, and fined and banned its former executive chairman £119,303.
Mitsui Sumitomo Insurance Company (Europe) is the London-based division of Mitsui Sumitomo Insurance Company, part of one of the world’s largest non-life insurance groups.
MSIEu historically supplied wholesale insurance cover to Japanese firms operating in Europe and the Middle East. From 2007 it expanded into non-Japanese business and by the end of 2010 half its premiums came from non-Japanese firms, much of it from branches in France and Germany.
In April 2009 Yohichi Kumagai was seconded from the Japanese parent company and appointed as executive chairman of MSIEu. Typically they had only limited experience of non-Japanese insurance business and UK regulatory obligations.
Shortly after his appointment the FSA wrote to Kumagai and MSIEu stating expansion into European markets would need careful and focused oversight from an appropriately skilled and experienced board. The regulator also said the firm’s systems and controls would also have to be improved to identify and address the risks posed by their new area of business.
The FSA says despite its clear guidance on the ineffective structure of the board, Kumagai failed to ensure key posts at MSIEu were staffed adequately. He failed to hire a chief underwriting officer, which then made it more difficult to control the expansion of the business. Kumagai also did not ensure the effective and timely implementation of a new IT administration system across the firm’s branch offices which led to shortcomings in the management information available to the board.
FSA acting director of enforcement and financial crime Tracey McDermott says: “Kumagai failed to respond adequately to the changing risks facing his business even after they had been pointed out by the FSA. If those who hold senior positions in financial services firms had had any doubt about how seriously we view their regulatory responsibilities this fine and ban should make our position crystal clear.
“The FSA requires firms to have effective corporate governance and controls. They must adapt these appropriately to reflect changes in their risk profile, especially growth into new areas.”