The Financial Times has reported that Towergate, a loss making insurance broker with debts of up to £1bn, may be about to breach the terms of its loans. According to these reports, a payment is due to Towergate’s secured creditors on Monday, 2nd February 2015, and another is due to its unsecured creditors two weeks later. These payments are reported to be worth about £30m. Towergate’s board is said to be weighing up rival restructuring bids this weekend (31 January / 1 February 2015), in an effort to save the business.
If these reports are true, Towergate’s board and the competing bidders will have many things to consider. And UK regulatory issues will almost certainly be amongst them.
We anticipate that the UK regulator, the Financial Conduct Authority, has already been contingency planning against the risk that Towergate would reach this stage. We also anticipate that its contingency plans are being, or are about to be, implemented and that it will be playing a key part in these developments as they occur.
The (so called) “controllers regime” requires every person who decides to acquire, increase, or decrease, the “control” he has over an FCA authorised firm, to give notice to the FCA. The FCA’s prior permission is usually required before a person “acquires control”, or materially “increases the control” he already has.
Towergate has more than 220 “Appointed Representatives” – companies and individuals that are entitled to carry out FCA regulated activities without having to be FCA authorised in their own right, because they are entitled to rely on Towergate’s FCA authorisation instead. It’s at least possible that some of these appointments will lapse, or be capable of being cancelled with immediate effect, if Towergate’s controllers change, or it falls into insolvency.
The Financial Times has also reported that Towergate is already in talks with the FCA about possible shortcomings in the advice it gave to consumers about “enhanced transfer values”, if they moved from a final salary pension scheme to another type of pension savings vehicle. The same reports also suggest that up to 2,000 individuals may be entitled to compensation as a result of any failings that actually occurred (*). The FT has also reported that Towergate and the FCA have been investigating the possible “misallocation” of £15m of client and insurer monies, potentially in breach of the FCA’s “client money” rules. If these things are true, and Towergate is eventually obliged to pay compensation to anyone who suffered loss as a result of any rule breaches that occurred, the Financial Services Compensation Scheme might have to step in, if Towergate cannot meet the compensation claims against it.
Online fora include consumer questions about the impact Towergate’s restructuring might have on the motor and other insurance policies it sold. In all probability, Towergate’s fate will not affect these policies. If Towergate was acting as an insurance broker, the insurance contracts it arranged will be between the insurer and the person who bought the contracts of insurance Towergate sold. Whatever happens to Towergate, it’s unlikely to change that fact, or undermine these policies. With any luck, the FCA will have something to say about these things in the coming days, and that will put consumers’ minds at rest.
* Late on Monday 2 February 2015, the FT reported that Towergate has said that it may have to pay £65m – £85m in compensation to these individuals. The FT report does not say how much it will cost to identify these individuals, calculate their individual compensation entitlements and arrange the appropriate payments.