A UK-based insurance adviser firm is set to lose more than £7m in fines and restriction costs following a ruling made by the UK financial services regulator the Financial Conduct Authority.
The FCA said in a statement that it has today published Decision Notices in respect of One Call Insurance Services Limited (One Call) and its chief executive and majority shareholder John Lawrence Radford.
A connected company to One Call, One Insurance Limited (OIL), has made a reference to the Upper Tribunal (the Tribunal) as a third party in relation to certain statements in the Decision Notices, where each party will present their case. The Tribunal will then determine the appropriate action for the FCA to take, which may or may not result in amendments to the Decision Notices, the FCA said.
These Decision Notices are therefore provisional (so far as they refer to OIL) in light of the challenge being made in the Tribunal by OIL as a third party. The findings made in the Decision Notices also, so far as they refer to OIL, reflect the FCA’s belief as to what occurred.
The Decision Notice in respect of One Call sets out that the FCA has decided to fine One Call £684,000 and impose a restriction on One Call for 121 days from the date the Final Notice is issued, so that One Call is restricted during that period from charging renewal fees to its customers, which is anticipated to cost the firm approximately £4.6 million.
The Decision Notice in respect of Radford sets out that the FCA has decided to fine Radford £468,600 and to prohibit him from having any responsibility for client money and/or insurer money in relation to regulated activity in financial services.
Radford has agreed to settle at an early stage of the investigation and therefore qualifies for a 30% discount. Were it not for this discount, the FCA would have imposed a fine of £669,531 on Mr Radford.
In the FCA’s view, One Call failed to arrange adequate protection for its client money, breaching Principle 10 of the FCA’s Principles for Businesses and the Client Money Rules.
Between January 2005 and September 2014, One Call received money, in the course of its activities as an insurance intermediary, which was client money under the Client Money Rules. One Call was therefore required to ensure it protected that client money, by complying with these requirements.
In the FCA’s view, it failed to do so because firstly, it failed to appreciate that certain Terms of Business Agreements it wrote business under did not provide effective risk transfer and failed to operate its client money account in accordance with the Client Money Rules.
Secondly, from 1 December 2009, One Call failed to treat funds advanced by a third party premium finance provider in respect of years two and three of an annual motor policy with a subsequent two-year renewal price guarantee as client money.
As a result, One Call inadvertently spent client money, resulting in a substantial client money deficit of £17.3m, (which it has subsequently repaid) and exposing customers to a significant risk of loss. The FCA believes that One Call inadvertently used sums from its client money bank account to finance its own working capital requirements, make payments to directors and, indirectly, to capitalise OIL, although no allegation of wrongdoing is made against OIL.
The FCA said that Radford, who as also the chief executive and a director of One Call, was responsible for client money at One Call between January 2005 and September 2011 and personally responsible for ensuring One Call complied with regulatory requirements in this context.
In the FCA’s view, Radford “failed to carry out his responsibilities with due skill, care and diligence, in breach of Statement of Principle 6, in a number of ways”.
“For example, he failed to keep himself informed of changes to regulatory requirements for handling client money and, when warned by One Call’s auditor that it might not be complying with such requirements, failed to investigate or ensure that One Call acted on those warnings,” the FCA said.
The FCA added that it also believes that Radford “failed to ensure that One Call established robust systems and controls for assessing whether effective risk transfer agreements with insurers were in place” so that if any client money shortfalls arose as a result of One Call’s failure, insurers rather than customers would bear this risk.
This meant he failed to identify that One Call had placed a small volume of insurance business under agreements which did not provide for effective risk transfer and the money in question should therefore have been treated as client money.
He also failed to recognise that money under a multi-year policy should have been treated differently in different years from a client money perspective, the FCA said.
“His misunderstanding of the Client Money Rules meant that he did not ensure that One Call performed adequate client money calculations to ensure that its client money resource was at least equal to its client money requirement, leading to a significant client money deficit.
“The FCA therefore believes that Mr Radford also breached Statement of Principle 7, in that he did not take reasonable steps to ensure that the business of One Call for which he was responsible complied with relevant regulatory requirements and standards,” the FCA statement said.
The FCA has decided that Radford is not fit and proper to have any responsibility for client money or insurer money in the context of regulated financial services. This is on the basis of his lack of competence to perform such functions.
Both One Call and Radford have agreed to settle at an early stage of the investigation and therefore qualified for a 30% discount. Were it not for this discount, the FCA said that it would have decided to impose a fine of £977,147 and a restriction for a period of 182 days on One Call and a fine of £669,531 on Radford.
- Decision notice for One Call Insurance Services Limited (PDF).
- Decision notice for John Lawrence Radford (PDF).
- Upper Tribunal’s decision .