The Financial Conduct Authority (FCA) has fined One Call Insurance Services and its CEO John Lawrence Radford £684,000 and £468,000 respectively for breaching rules around handling of client money.
In addition to the fines, the FCA will also impose a restriction on One Call, which is a broker providing car, van and home insurance, for 121 days from the date the Final Notice is issued.
This means One Call is restricted during that period from charging renewal fees to its customers, a move which is anticipated to cost the firm approximately £4.6m.
The watchdog detailed that Radford 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 would have imposed a fine of £669,531.
In the FCA’s view, One Call failed to protect client money 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 also inadvertently used sums from its client money bank account to finance its own working capital requirements, make payments to directors and, indirectly, to capitalise linked business One Insurance Ltd (OIL), although no allegation of wrongdoing is made against OIL.
OIL has challenged some of the Decision Notices which will be heard at a tribunal.
The regulator further detailed that Radford 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. He was also the chief executive and a director of One Call.
The FCA stated that Radford failed to carry out his responsibilities with due skill, care and diligence.
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 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 regulator stated: “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 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 regulator 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.
The FCA pointed out that 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 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.