The UK's Financial Conduct Authority has fined Shay Jacob Reches, an insurer, more than £1 million for performing a CF1 (director) controlled function at an authorised firm without its approval, the first time that this has happened.

Reches was given the green light from a managing general agent company called Aderia to sign documents on its behalf, but should have known (if indeed he did not know) that in the circumstances he was performing a controlled function without FCA permission for the purposes of section 63A(1) Financial Services and Markets Act. The fine was £1,050,000 plus "any of the sum of £13,130,000 that he is proposing to pay to various insurers that remains unpaid," according to his final notice.

In the period 2011/2012, Reches was involved in arranging a scheme whereby solicitors obtained solicitors’ professional indemnity insurance from the European Risk Insurance Company or ERIC. This cover was reinsured by Balva Insurance Company AAS (both Balva and ERIC are now in administration) and by Sinclair Insurance Company Limited, a reinsurance company that he owned and controlled. Reches directed payments of the majority of the premiums, paid by solicitors through brokers with British licences and the aforementioned managing general agent firm, Aderia UK Ltd, to a variety of third parties. Little money from premiums was paid to the insurers ERIC or Balva. As a result, neither had sufficient funds to meet claims and relied upon Sinclair to honour the reinsurance arrangements. Sinclair failed to cover all the reinsurance claims or pay out on its guarantee agreements.

The Capital Market Commission, the Latvian regulatory authority that was Balva's home state regulator, removed its licence in April 2013, whereupon Reches turned to a German insurance company, Berliner Versicherung Aktiengesellschaft, to provide the Solicitors’ PII cover that Balva had been underwriting. Mr Reches introduced Berliner to a number of brokers and Aderia signed a binding authority agreement with Bar Professions Limited, which then offered the replacement cover for the year 2012/2013, as well as renewal cover for 2013/2014, to solicitors before Berliner had agreed to provide Solicitors’ PII to the UK market. More than 900 solicitors accepted the replacement cover.

Berliner subsequently signed an agreement to provide replacement cover several weeks later, but only up to a limit of €5m. This was barely enough to fund the replacement cover, let alone any renewals or new business in the approaching policy year. Berliner’s agreement was later annulled and more than 900 solicitors’ firms were exposed to the risk that they may have been left without mandatory Solicitors’ PII cover.

The Financial Services Compensation Scheme has had to pay £9.1 million in claims, with some £19.7 million still outstanding. Reches' £13.13 million is going to ERIC, Balva and Millburn Insurance, another company in administration that he controlled.

Reches was reckless in his stewardship of this business venture and appears to be something of a 'chancer.' According to the FCA, he is subject to six cease-and-desist orders issued in 2006 (either in his own name, or those of his companies) in Canada and the USA (specifically Arkansas, Florida, Idaho, Nebraska, Washington and British Columbia) for selling insurance without a licence. According to checkcompany.co.uk, Reches is an Israeli citizen who works in Luton in Bedfordshire.