The FSA has banned two former London market reinsurance brokers from any regulated activity for two years.
While working for Benfield, the FSA alleges that the individuals were involved in designing and placing a loss portfolio transfer (LPT) contract, which was used by their client to distort its financial position.
Robert George Phillips and Isabel Rawlence were involved in the design and placement of an insurance contract on behalf of Chiyoda Fire and Marine Insurance Company (Europe) LimitLtded (CE).
The contract was used by CE as part of a wider plan enacted by senior employees to deceive CE's auditor as to the extent of its losses. It also led to inaccurate reporting of its financial position by CE to the FSA.
Phillips and Rawlence stated that they did not know that the purpose of the contract was to obscure the financial position of Chiyoda Europe.
Margaret Cole, FSA director of enforcement, said: "The conduct of these individuals was inappropriate. In addition, they failed adequately to question the conduct of senior employees at their client.
"Financial reinsurance should only be used where there is a legitimate commercial purpose and proper disclosure.
"In this case the FSA considers that there were indications that part of the contract placed by the two brokers was not transparent and did not involve any transfer of risk.
"The FSA will not hesitate to take robust action against anybody that undermines confidence in the financial system."
The FSA said that Phillips and Rawlence placed a legitimate LPT contract for CE. While doing so, they were involved in the inclusion of a supplemental payment of £5m.
It added that this was to be paid via the LPT reinsurer to a third party insurer as payment for what had effectively been a loan to CE's parent.
The individuals said they did not know the purpose of the payment.
The FSA alleged that this supplementary payment was not transparent and did not involve any transfer of risk despite being treated as premium.
They also explored the possibility of an additional quota share contract which would have lacked transparency and the transfer of risk required in a reinsurance contract had it proceeded.
The FSA confirmed that no investigation had been commenced in relation to Benfield Ltd or any Benfield Group company.
