Towergate, the insurance intermediary chaired by John Tiner the former head of the old City watchdog, has been fined by its successor for failing to spot a £12.6m hole in its client money accounts.

John Tiner says Towergate failed to live up to the high standards expected of it – In a statement Mr Tiner said:

• “While this issue is historic, isolated and had no financial impact on any clients or insurer partners, it does not excuse the fact that the company failed to live up to the high standards we expect of ourselves at Towergate and we deeply regret it occurred.”

The Kent-based company, which came close to running out of cash last year, failed to catch deficits in the accounts over eight years due to shoddy systems, leading the Financial Conduct Authority to impose a £2.6m fine.

Even when Towergate did spot the problem, the FCA said the company took months to rectify the issue and did not immediately inform the regulator, despite rules saying any shortfalls must be corrected the day they are noticed.

The penalty is small by historic FCA standards:

• It fined Bank of New York Mellon a record £125m last year for not properly ring-fencing client accounts.

Towergate accepted the FCA’s findings and had made “fundamental changes” since the investigation.

The FCA, which has been emphasising the need to hold senior managers to account, also fined Timothy Philip, a former Towergate director, and banned him from holding a similar position looking after client money.

Mark Steward, the FCA’s head of enforcement, said:

• “We have issued repeated warnings to the industry on the importance of complying with client money rules which are designed to ensure that client money is adequately protected in the event of a firm failing.
• There can be no excuses given these warnings and the stakes involved.
• In addition, the firm’s failings placed insurer money at risk of loss.”

Towergate co-operated with the FCA’s investigation and qualified for a 30 per cent discount on a fine that would have otherwise been £3.7m.

Client money issues came to the fore in 2008 when Lehman Brothers’ bankruptcy led to a lengthy court battle over commingled accounts.

The FSA sent letters, first to compliance officers, then to chief executives in 2010, ordering them to have systems in place to prevent a repeat of the debacle and to ensure the segregation of client money in case a financial services company became insolvent.

Read FCA page – http://bit.ly/2a34xQE