FSA BANS SIX INDIVIDUALS
5 Feb 2004 11:45 AM
The Financial Services Authority (FSA) has banned six former
directors of a UK insurance company called Chiyoda Fire and Marine
Insurance Company (Europe) Limited (CE) for their role in distorting
the financial results of CE during 1999 and 2000. CE is currently
known as Aioi Insurance Company of Europe (AE). This is the FSA's
first enforcement action in relation to senior management of an
insurance company.
Three individuals, Mr Yoshiaki Yamazaki, Mr Hiroshi Okazaki and Mr
Robert McKibbin have been prohibited from performing any functions in
relation to any regulated activity carried on by any authorised
person. The remaining three individuals Mr Kazuhide Oda, Mr Toru
Morota and Mr David Titterington have been prohibited from performing
any function involving the exercise of management authority over any
other person in relation to any regulated activity carried on by any
authorised person. The FSA has decided that each of the individuals
failed to act with honesty and integrity as directors of CE. Their
conduct demonstrated a fundamental lack of fitness and propriety and
represented a risk to confidence in the financial system.
All six individuals were at varying times directors of CE, a
subsidiary of a Japanese insurance company called Chiyoda Fire and
Marine Insurance Company Limited (CJ). The consolidated profit of the
Chiyoda Group depended in part on the performance of CE. The
executive directors of CE were requested to find means of improving
CE's 1999 performance. The collective actions of these individuals
resulted in an apparent reduction of CE's losses from £34mn to £4mn
in 1999.
The improvements in CE's 1999 results were achieved by disguising a
loan from an unconnected reinsurance company and a capital injection
from CJ as reinsurance contracts. Over the next two years CE entered
into a series of further reinsurance contracts in order to repay the
original loan from the reinsurance company. All of these transactions
led to a misrepresentation of CE's financial accounts for the year
ends of 1999 and 2000 and consequent misstatement of the financial
information reported to the FSA for those years.
Andrew Procter, Director of Enforcement at the FSA said:
"Fiddling the figures reported to the FSA or those declared in
company accounts, has the potential to undermine regulation and
destroy confidence in markets. This is why we think that only the
very strongest of the sanctions available to us is appropriate in
these circumstances. All of these individuals abused their positions
and as such they are not fit and proper to work again in senior
positions in the UK insurance market.
"We have been aware of the use of reinsurance contracts in financial
engineering for some time and have made absolutely clear that such
contracts can only be used where there is a legitimate commercial
purpose. We also want to make clear that as the UK financial
regulator we would regard the behaviour of insurance companies
involved in transactions similar to those outlined above as falling
below the standards that we require of UK regulated companies. Nobody
should doubt our resolve to deal with any similar instances in the
most robust manner available to us."
More details on the failings of the individuals and their involvement
in the attempt to conceal the true nature of the various transactions
can be found at www.fsa.gov.uk/pubs/final/index
NOTES TO EDITORS
1. All events described took place before 1 December 2001, when the
FSA received its full powers and assumed responsibility for insurance
regulation. As such the only disciplinary tool available to the FSA
against the directors is the use of prohibitions.
2. In April 2001 Chiyoda Europe changed its name to Aioi Insurance
Company of Europe (AE) as a result of a merger between Chiyoda Fire
and Marine Insurance Company and another Japanese insurance group,
Dai Tokyo to form the Aioi Insurance Company Limited.
3. The FSA has not taken action against Aioi Europe. Disciplinary
action was not appropriate given the change in shareholders, the
wholesale replacement of the management team, the possible impact on
policy holders and the extent of co-operation provided during the
investigation.
4. The other insurance and reinsurance companies involved in the
transactions are not based in the UK and therefore not regulated by
the FSA.
5. 'Financial engineering' is an umbrella term for certain types of
arrangements used by insurance firms for financing or regulatory
reporting purposes, or both. These arrangements are used to improve,
or sometimes to smooth reported profits, or to improve the reported
balance sheet position.
6. 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; the appropriate degree of protection of consumers;
and fighting financial crime.
7. The FSA aims to maintain efficient, orderly and clean financial
markets and help retail consumers achieve a fair deal.
ENQUIRIES:
Public: FSA Consumer Helpline 0845 606 1234
Website: www.fsa.gov.uk
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