Company bosses underwrote policies through two unlawful companies.
Four insurance directors have been banned from conducting insurance business in the UK following an FSA crackdown.
The authority said Stephen Fryett and Richard Baines “displayed a serious lack of integrity” after they sold policies through Insureyourshop.com.
They then underwrote policies through CIC Costa Rica and CIC Greece, both banned in the UK.
Their clients, including construction firms and fast-food outlets, signed up thinking the insurance was genuine.
But they were left vulnerable to substantial losses and prosecution because they did not have valid employers’ liability insurance.
Fryett and Baines were investigated after the FSA banned David William King, who controlled CIC Costa Rica and CIC Greece.
Margaret Cole, the FSA’s director of enforcement, said: “Mr Fryett and Mr Baines displayed a serious lack of integrity and honesty and put a large number of UK businesses at serious insurance risk with the potential to also undermine consumers’ confidence in the insurance sector.
“"Those who fail to check firms can operate lawfully will be prohibited in the UK.â€
Margaret Cole, FSA
“Our action sends out a strong message that those who fail to check that firms can operate lawfully in the UK and who encourage firms to conduct financial services without authorisation will be prohibited from working in the UK financial services sector.”
The FSA also banned Roger Muse and his son Daniel Muse for three years after they failed to ensure their firm complied with money rules. They are no longer allowed to involve themselves in financially regulated business.
Roger and Daniel Muse were directors of FHI (Northern Ltd), a small general insurance intermediary business, based in Tyne & Wear.
“Both of these directors failed to discharge their duties as approved persons to ensure that their firm complied with the FSA’s client money rules,” said Cole.
“Although no clients were directly affected, the systems and rules – relating to proper segregation and accounting for client money held by firms – are a vital protection for consumers.”
Baines and Fryett, and Roger and Daniel Muse could not be reached for comment.