FCA fines Towergate and former director for client and insurer money failing

Towergate, an insurance intermediary which holds both client and insurer money, accumulated a shortfall of £12.6 million which, due to systems and controls weaknesses, went undetected for over 8 years.

The FCA has also fined former Towergate Client Money Officer and CF1 (director) Timothy Philip £60,000 and banned him from having direct responsibility for client and insurer money.

The FCA found that Towergate failed to comply with CASS Rules and Principles 3 and 10 of the FCA's Principles of Business.

The weaknesses in Towergate's controls contributed to several distinct failings, including:

• On four occasions under Mr Philip's instruction, sums totalling £10.5 million were transferred from Towergate's client money and insurer money bank accounts to the office bank account of an intermediate parent company.

However, this resulted in accumulated deficits of £5 million in the client money bank accounts and £5.5 million in its insurer money bank accounts.

• As part of its arrangements with clients Towergate is permitted to retain all interest on balances held on client money bank accounts.

Any interest earned on client money is Towergate's money and should be removed from client money bank accounts.

• However between June 2005-October 2011, £1.45m of interest belonging to Towergate was not removed from client money accounts and was not identified until 2013.

• In October 2007 the firm transferred £2.13 million from a client money bank account to an insurer money bank account.

That transfer was not reflected accurately in the accounting records which led to the sum being transferred again in January 2009 creating a £2.13 million shortfall in its client money bank account.

From December 2008, in breach of its agreements with insurers, Towergate changed the basis upon which it removed commission owed to it by insurers from its insurer money bank accounts.

This resulted in a £3.6 million deficit in Towergate's insurer money bank accounts.

Mark Steward, director of enforcement and market oversight at the FCA said:
"We have issued repeated warnings to the industry on the importance of complying with client money rules.

"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."