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Shane Younger and Christopher Percival | Guernsey Financial Services Commission

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The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (the “Financial Services Commission Law”)
The Insurance Business (Bailiwick of Guernsey) Law, 2002 (the “Insurance Law”)

Global Insurance Group Limited (“GIGL”)
Shane Younger (“Mr Younger”)
Christopher Percival (“Mr Percival”)

On 10 July 2020, the Guernsey Financial Services Commission (the “Commission”) decided:

1. To impose a financial penalty of £48,650 under section 11D of the Financial Services Commission Law on Mr Younger;

2. To impose a financial penalty of £30,100 under section 11D of the Financial Services Commission Law on Mr Percival; and

3. To make a public statement under section 11C of the Financial Services Commission Law.

The Commission considered it reasonable, proportionate and necessary to make these decisions having concluded that Mr Younger and Mr Percival failed to fulfil the minimum criteria for licensing under Schedule 7 to the Insurance Law.

Background

Mr Younger and Mr Percival were non-executive directors (from 22 December 2011 to 22 February 2019 and 22 December 2011 to 14 July 2017 respectively) and the majority shareholders of Global Insurance Group Limited (“GIGL”) which was licensed under the Insurance Law. Mr Younger and Mr Percival are also Chief Executive and director of a United Kingdom insurance intermediary (“Intermediary A”) respectively. Mr Younger and Mr Percival are also minority shareholders in the ultimate holding company of Intermediary A. As a result of Mr Younger and Mr Percival’s position with Intermediary A, they had access to more information than the other GIGL directors regarding Intermediary A’s business activities related to GIGL.

Under an agreement between GIGL and Intermediary A, Intermediary A issued insurance policies on behalf of GIGL. Intermediary A was also able to collect premiums from policyholders on behalf of GIGL and retain a portion of the premiums as a loss fund to pay claims on behalf of GIGL (“the Claim Fund”). Bordereaux reports (a list, or summary, of policies issued and premiums charged and/or claims paid) should have been prepared monthly by Intermediary A and, if due, net premium settlements made quarterly to GIGL.

The Commission conducted a risk assessment visit to GIGL in July 2017 (“the 2017 Visit”). In the period prior to the 2017 Visit, apart from the first quarterly payment to GIGL by Intermediary A, the only payments made were the exact amounts required to pay GIGL’s reinsurers. GIGL’s management accounts showed that the amounts outstanding from Intermediary A grew whilst GIGL’s cash remained low. The amounts due from Intermediary A were GIGL’s major asset.

GIGL began to request that the payments be regularised from November 2015 onwards. However, regular payments from Intermediary A were not forthcoming. The outstanding amounts were only paid to GIGL after intervention by the Commission and after investment into Intermediary A by a third party.

Findings

Mr Younger

During the relevant period of 2012 to February 2019:

As a non-executive director of GIGL, Mr Younger failed to ensure the implementation of effective systems of control, in particular in relation to the Claim Fund held by, and the bordereaux reporting from, Intermediary A. Whilst Mr Younger contends that other directors of GIGL were visiting Intermediary A to check the accuracy of reporting by Intermediary A, those directors claim no visits to check the accuracy of reporting took place and no reports of any checks undertaken at such visits have been provided.

As a non-executive director of GIGL, Mr Younger also failed to ensure that the amounts due from Intermediary A were paid to GIGL in a timely manner, in particular after November 2015 when this was first raised with Intermediary A by GIGL.

A risk register was prepared by another director of GIGL in October 2016, which was subsequently considered by Mr Younger as a director of GIGL. Credit risk, which was defined as financial loss through counterparty failing to meet obligations, was deemed to be low likelihood and medium impact in the risk assessment.

A risk assessment of outsourced activity was also prepared by another director of GIGL in May 2018, which was again considered by Mr Younger as a non-executive director of GIGL. Again, credit risk was deemed to be low likelihood and medium impact.

Given the issues that had been ongoing since November 2015 regarding the payments due from Intermediary A and that Intermediary A was GIGL’s largest debtor, this is surprising. As a result, Mr Younger failed to adequately consider the risks to GIGL of Intermediary A failing to honour its debt to GIGL.

The failures by Mr Younger outlined above demonstrate a lack of competence, experience, sound judgement and diligence by Mr Younger and as a result Mr Younger failed to fulfil the fit and proper requirements set out in paragraph 3 of Schedule 7 to the Insurance Law.

Mr Percival

During the relevant period of 2012 to July 2017:

As a non-executive director of GIGL, Mr Percival failed to ensure the implementation of effective systems of control, in particular in relation to the Claim Fund held by, and the bordereaux reporting from, Intermediary A. Whilst Mr Percival contends that other directors of GIGL were visiting Intermediary A to check the accuracy of reporting by Intermediary A, those directors claim no visits to check the accuracy of reporting took place and no reports of any checks undertaken at such visits have been provided.

As a non-executive director of GIGL, Mr Percival also failed to ensure that the amounts due from Intermediary A were paid to GIGL in a timely manner, in particular after November 2015 when this was first raised with Intermediary A by GIGL.

Mr Percival failed to adequately consider the risks to GIGL of Intermediary A failing to honour its debt to GIGL despite the issues that were occurring with Intermediary A’s failure to pay at the time of his consideration of the risk assessment prepared in October 2016.

The failures by Mr Percival outlined above demonstrate a lack of competence, experience, sound judgement and diligence by Mr Percival and as a result Mr Percival failed to fulfil the fit and proper requirements set out in paragraph 3 of Schedule 7 to the Insurance Law.

Aggravating Factors

The actions of Mr Younger and Mr Percival could have seriously put at risk the payment of claims to policyholders and therefore could have posed a risk to the reputation of the Bailiwick as an international finance centre.

Mitigating Factors

Mr Younger and Mr Percival accepted the findings against them and agreed to settle at an early stage. This has been taken into account by applying a 30% discount in setting the financial penalties imposed.

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