An insurance company has been fined more than £2.6 million by a City watchdog for allowing a £12.6 million shortfall to appear in its client and insurer bank accounts.

Towergate Underwriting Group, which has its headquarters in Maidstone, had allowed the failings to go undetected for a number of years according to the Financial Conduct Authority (FCA).

The body also handed out a £60,000 fine to former Towergate client money officer and director Timothy Philip and banned him from having direct responsibility for client and insurer money.

“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,” said FCA director of enforcement and market oversight Mark Steward.

“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.

“Senior management are ultimately responsible for ensuring that firms are following our rules and it is very clear that Mr Philip failed in that regard, falling well below the standards we require.”

The FCA said weaknesses in the insurance giant’s systems and controls had allowed a total of £10.5 million to be transferred on four occasions from its money and insurer bank accounts to the office bank account of an intermediate parent company.

It said Towergate, which also has branches in Sevenoaks and Faversham, failed to properly consider the implications of these transfers, which resulted in accumulated deficits of £5 million in the client money bank accounts and £5.5 million in its insurer money bank accounts.

Towergate chairman John 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.

“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..." - John Tiner, Towergate

“The company fully accepts the conclusions reached by the FCA, and the board is pleased that the regulator has recognised the company’s transparency and assistance throughout the process.

“Since identifying the issue, we have made a number of fundamental changes to our governance and control environment.”

Despite the failures, there was no actual loss of client or insurer money and Towergate has since rectified the shortfall.

Both Towergate and Mr Phillip had their fines reduced for agreeing to settle at an early stage.

Had the discounts not been enforced, Towergate would have been fined nearly £3.8 million and Mr Phillip almost £86,000.