The Financial Conduct Authority has fined five individuals and two firms a total of £15.5m, in addition to banning four of those individuals, in relation to solicitors’ professional indemnity insurance failures.
The FCA found Shay Reches performed the CF1 (director) controlled function at Coverall Worldwide Limited, with responsibility for a managing general agent Aderia UK Limited, which were central to setting up and operating insurance schemes, despite not being approved to do so.
In doing so, he “recklessly” directed payments of insurance premiums to parties other than the insurers and reinsurers responsible for paying claims, increasing the risk that policyholders’ claims would not be paid.
This misconduct contributed to the failure of several insurance schemes as well as to three insurers going into administration.
As a result, the Financial Services Compensation Scheme has had to pay claims totalling £12.7m, as at the end of 2015.
The FCA has fined Mr Reches just in excess of £1m and he has also agreed to pay a sum of £13.1m to the three insurers, which will make a substantial contribution towards the liabilities to the FSCS and UK policyholders.
If he fails to pay this amount or any part of it, the fine will be increased by the amount unpaid, warned the regulator.
These payments to insurers will deprive Mr Reches of the indirect benefit that the FCA considers he has gained from his misconduct, while he has also been prohibited from performing any function in relation to any regulated activity.
Action was also taken against Colin McIntosh, Millburn Insurance Company Limited, Coverall, Robert Bygrave, Andrea Sadler, Wayne Redgrave and Bar Professions Limited.
These actions were taken as a result of a joint investigation by the FCA and the Prudential Regulation Authority, with the PRA set to publish final notices against Mr McIntosh and Millburn later today.
Mark Steward, the FCA’s director of enforcement and market oversight, called it “a hugely complex case” which required liaising with over 20 regulators and agencies around the world.
Mr Steward said: “Mr Reches’ misconduct led to many solicitors and others being left without adequate insurance.
“He treated policyholders’ funds and their interests with reckless indifference and his misconduct was facilitated by an absence of proper controls by key persons at important stages of the insurance process.“
The investigations followed early intervention action taken jointly by the FCA and PRA between July and September 2013, following concerns raised about the validity of solicitors’ PII arranged for over 1,300 firms across England and Wales.
These schemes used binding authorities issued by London-based managing general agent Aderia, to various coverholders, including to specialist insurance broker, Bar, which sold solicitors’ PII.
Aderia was an appointed representative of UK insurer Millburn and UK insurance intermediary Coverall.
The failings in the management oversight throughout these distribution chains and the failure of the reinsurance arrangements contributed to three of the insurers - Millburn, European Risk Insurance Company, an Icelandic insurer, and Balva Insurance Company, a Latvian insurer - going into administration, in part due to debts owed by Sinclair.
peter.walker@ft.com
