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FSA/PN/072/2006
19 July 2006

The Financial Services Authority (FSA) and the Australian Prudential Regulation Authority (APRA) have today prohibited a reinsurance specialist, Mr John Byrne, for five years. Mr Byrne was involved in arranging and structuring a number of financial reinsurance transactions that enabled counterparty insurers to misrepresent their financial position.

Under the terms of the FSA prohibition, Mr Byrne is prohibited for five years from performing in the UK any controlled function requiring FSA approval.

Under the terms of the enforceable undertaking accepted by APRA, Mr Byrne is not to be or act for five years in Australia as a director or senior manager of a general insurer, non-operating holding company or agent of a foreign general insurer.

It is the first time that the FSA and APRA have jointly settled an enforcement case between them.

The FSA and APRA have concluded that Mr Byrne was involved in financial reinsurance contracts that he knew lacked sufficient risk transfer. Mr Byrne knew that the client insurers would be highly likely to use these transactions to misrepresent their true financial position. Mr Byrne also backdated one contract which helped conceal the true substance of the transaction. The transactions were undertaken between 1998 - 2001 when Mr Byrne was a senior employee of Cologne Reinsurance (Dublin) Ltd, a subsidiary of the Gen Re Group.

Margaret Cole, the FSA's Director of Enforcement, said:

"Mr Byrne's conduct fell below what we would expect of those working in authorised firms. He was aware that it was likely that the counterparty insurers would use the transactions to misrepresent their true financial position.

"The FSA has said that financial reinsurance should only be used for legitimate purposes and should be accompanied by full disclosure. We have taken action against other individuals who have misused financial reinsurance and we will continue to do so where we believe it has been misused.

"This outcome is the result of the excellent co-operation between APRA and the FSA, with extensive assistance from the Irish Financial Services Regulatory Authority."

Mr Byrne accepts that his conduct was improper, has expressed considerable remorse and regret and has also co-operated to assist the FSA and APRA investigations. Mr Byrne was an FSA Approved Person between 10 December 2004 and 6 July 2006.

Notes to editors

1. In the UK, the FSA has issued a Final Notice prohibiting Mr Byrne. In Australia, APRA has accepted an Enforceable Undertaking from Mr Byrne. The transactions are outlined in the FSA's Final Notice and in Mr Byrne’s Enforceable Undertaking to APRA, which can be seen on APRA's website.
2. Financial, or finite, reinsurance is a form of reinsurance. Whilst there are legitimate reasons for using financial reinsurance, its use should properly be disclosed, including the entirety of any arrangements, to regulators, auditors, tax authorities and the market as appropriate. If used improperly, and not fully disclosed, financial reinsurance can be used to conceal the true financial position of a company.
3. Both the FSA and APRA were assisted in their investigations by the Irish Financial Services Regulatory Authority.