A “genuine procedural error” has cost Doncaster-based broker, One Call Insurance Services, and its chief executive John Radford, dear. The Financial Conduct Authority has dealt out a provisional £684,000 fine and a temporary ban of 121 days on charging customers renewal fees, which is set to cost the business around £4.6 million.
The case shows the FCA’s rigorous approach and client money safeguards must be watertight. So, what are the key messages risk managers should learn from this case? Firstly, the overriding message is that ignorance is no excuse. Those running firms must understand the rules and if they need help, their in-house compliance staff must be closely involved, and if there are gaps in knowledge, then experts should be drafted in.
One Call has insisted that there was no dishonesty intended, even though some £17.3 million of client money was misspent on areas such as directors’ pay and funding a connected business, One Insurance.
The regulator insists an intermediary must have enough funds to reimburse clients if the business becomes insolvent and has to carry out calculations to make sure this can happen every 25 days. However, they can avoid this if the risk is transferred to an insurer, via the Terms of Business Agreement. One Call did not do this.
The FCA believes problems stemmed from at least 2009, when One Call, which sells mainly through price comparison sites, did not have adequate protection for monies that should have been paid on to insurers, a breach of Principle 10 of the FCA’s Principles for Business and Client Money Rules.
Seek advice from the outset
Some of the motor policies One Call sold were unusual as they were longer term, covering three years, with a two-year renewal price guarantee. The three years of monies were transferred upfront to One Call from a premium finance provider, but the FCA said the intermediary did not realise that funds under a multi-year policy “should have been treated differently in different years from a client money perspective.”
So, this case shows One Call:
- Failed to understand what constituted client money.
- Was unclear on Cass 5 rules or having standard wordings for risk transfer in their Terms of Business Agreements (TOBAs)
- Failed to properly ring-fence client money in a trust account.
Radford said: “I wouldn’t have got any work done if I’d have sat and read FCA documents all the time,” but this only goes to show he should have worked more closely with risk and compliance professionals. Notably an auditor also picked up on potential problems in 2012, but One Call took no immediate action.
Radford will continue to act as chief executive, but his reputation has been muddied, with the FCA stating he failed to act with “due skill, care and diligence in breach of the FCA’s Statement of Principle 6 for Approved Persons.” As such, he will no longer oversee client money, and the business has strengthened its board as the regulator recommended.
Time will tell whether there will be ongoing business repercussions, the firm has around 500,000 customers and is relatively high profile, since Radford also owns football team, Mansfield Town, sponsored by One Call.
One Call did admit it made an error and through agreeing to settle at an early stage of the investigation, qualified for a 30% discount, which is reflected in the fines – however, the sums remain considerable. It also emphasised that “no consumer was without motor insurance and neither were they at any financial loss. There was no commercial loss to any insurer or any other trading partner.”
The fines are yet to be paid, as an appeal is also ongoing as the One Call disputes that One Insurance should be castigated, claiming it did not make any regulatory errors. This will be heard at a forthcoming tribunal, but for now, this sorry saga shows that the UK has a regulator that will swoop on any firm that does not have the most stringent procedures in place and any lack of understanding will fail to be listened to as a defence.