FSA fines former chief executive for failings leading to client money rule breaches

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FSA/PN/095/2006
22 September 2006

The Financial Services Authority (FSA) has today fined Paul Harrison, former Chief Executive of insurance broker Berry Birch & Noble Insurance Brokers (BBNIB) £17,500 for failing to implement proper systems and controls to ensure that customers' money held by the firm was adequately protected.

BBNIB was authorised as a general insurance broker between 14 January 2005 and 8 May 2006. During that period Mr Harrison was Chief Executive and responsible for ensuring that BBNIB complied with the FSA's client money rules. He failed to do so.

In July 2005 BBNIB's auditors identified serious failings in its client money systems and practices which meant that the firm was unable to ensure compliance with the FSA's client money rules. Prior to receiving this information from the firm's auditors Mr Harrison had neither known nor enquired whether BBNIB was complying with those rules.

Margaret Cole, FSA Director of Enforcement, said:

"Mr Harrison was an Approved Person who failed to carry out his controlled functions, which included Chief Executive of his firm, with due skill, care and diligence. His failure meant that BBNIB did not provide adequate protection for its clients' money. The client money rules are designed to ensure that money belonging to customers is protected and those responsible for firms which hold client money should appreciate that they are responsible for ensuring that the rules are complied with."

Mr Harrison was responsible for the firm's failure to segregate client money, to keep track of client money held by third parties and to perform essential client money calculations and reconciliations. As a result of these failings client money was not adequately protected and only after extensive investigation by audit professionals were accurate balances struck and confirmation given that they were genuinely in credit.
Mr Harrison has accepted personal responsibility for the failings at BBNIB and the FSA has given him full credit for his conduct following the identification of this issue. Otherwise a more severe sanction might have been imposed.

BBNIB is no longer a trading company following the sale of its business assets earlier this year.

Notes to editors

The full text of the Final Notice, dated 18 September 2006, includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when setting the level of the fine.
In deciding on its action the FSA had regard to Statements of Principle 2, 5, 6 and 7 for Approved Persons and associated guidance:
- Statement of Principle 2: "An approved person must act with due skill, care and diligence in carrying out his controlled function." (APER 2.1.2P)
- Statement of Principle 5: "An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively." (APER 2.1.2P)
- Statement of Principle 6: "An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function." (APER 2.1.2P)
- Statement of Principle 7: "An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system." (APER 2.1.2P)
The FSA's client money rules are set out in the Clients Assets Sourcebook ("CASS").
No customer loss resulted from Mr Harrison's actions.
This case was settled under the FSA's Executive Settlement Scheme.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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