The Financial Services Authority has fined Mitsui Sumitomo Insurance Company £3,345,000 for serious corporate governance failings, and imposed a ban and fine of £119,303 on its former executive chairman, Yohichi Kumagai.
MSIEu historically supplied wholesale insurance cover only to Japanese firms operating in Europe and the Middle East. From 2007 it expanded into non-Japanese business and by the end of 2010 half its premiums were coming from this source, much of it from branches in France and Germany.
In April 2009 Kumagai was seconded from the Japanese parent company and appointed as executive chairman of MSIEu. His appointment was part of a staff rotation programme through which a number of directors were regularly sent to MSIEu.
Shortly after his appointment the FSA wrote to Kumagai and MSIEu stating that expansion into European markets would need careful and focussed oversight from an appropriately skilled and experienced board. The firm's systems and controls would also have to be improved to identify and address the risks inherent in this new area.
As executive chairman, Kumagai was the key decision maker at MSIEu and responsible for ensuring that the business was run competently and in a controlled manner. Despite receiving clear guidance from the FSA that the management structure and composition of the board was ineffective, he failed to take prompt action to remedy the situation.
According to the FSA, Kumagai failed to ensure that key posts at MSIEu were filled with staff who had the necessary experience, knowledge and time to fulfil their roles effectively.
In addition, Kumagai did not ensure the effective and timely implementation of a new IT administration system across the firm's branch offices which led to shortcomings in the management information available to the board.
Overall MSIEu had significant failings in corporate governance and control arrangements which resulted in it being poorly organised and managed across its business as a whole, the FSA said.
Tracey McDermott, acting FSA director of enforcement and financial crime, said: "Senior management must take responsibility for the firms that they run. Kumagai failed to respond adequately to the changing risks facing his business even after they had been pointed out by the FSA."
Kumagai and MSIEu agreed to settle at an early stage and therefore their fines were 30% lower. Had they not settled, the fines would have been £170,433 and £4,780,000 respectively, the FSA said.
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