The FSA needs to toughen up its sanctions
This month has seen the City watchdog ban a spate of brokers and underwriters for performing regulated activities and issue a record fine against the UK’s largest insurer, Norwich Union.
The regulator wants to show its bite is equal to – if not worse - than its bark.
Last week, the FSA issued a ban against former Insure & Go chief executive James Richardson, who had misled the regulator and the company’s auditors over a tax scheme.
The FSA said Richardson had failed to act with the integrity expected of a chief executive.
Days before, a number of underwriters and brokers involved in dishonestly placing business in a binder facility with reinsurer Sphere Drake were banned.
This came as little surprise, however; the four were found to have acted dishonesty in a court case in 2003. And yesterday, pet insurance broker David Holland was banned for misusing customers' assets.
The FSA said he had placed premiums amounting to at least £162,000 into his own personal bank account and used this money for personal expenditure;
But these are relatively small fry. Would the FSA be as tough with the big fish?
That question was answered with yesterday’s £1.26m fine against Norwich Union Life.
The insurer had failed to protect its customers’ confidential information, resulting in £3.3m worth of fraud against policyholders – this was despite the fact that NU had been warned by its compliance team that its systems were inadequate.
The seriousness of the breach was compounded by the fact that NU took action to protect its directors who were policyholders, but did not take similar steps to inform other policyholders.
The FSA said a serious penalty was in order, mitigated by the remedial action taken by NU, including cooperating with the police and reinstating all the policies that were fraudulently surrendered.
But despite the FSA’s claimed desire to impose a serious penalty, £1.25m is only a drop in the ocean for NU and its parent Aviva – equivalent to less than four hours’ profits for Aviva.
So will the fine it act as a deterrent to other companies? The answer, at least for the major ones, is probably not.
If the FSA truly wants to get tough, it needs to be prepared to impose harsher penalties.