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The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have banned and fined a former CEO who paid excessive remuneration to his wife to reduce his tax liability.
A joint investigation by the FCA and PRA found that Stuart Malcolm Forsyth, the former CEO of a small mutual insurer, was found to have transferred excessive amounts of his own remuneration to his wife between February 2010 and July 2016, to reduce his own tax liability.
According to the FCA, as CEO of Scottish Boatowners Mutual Insurance Association (SBMIA), Mr Forsyth paid his wife a proportion of his own salary in compensation for providing some out of hours administrative support and occasional hospitality at home.
Up until 2010, Mrs Forsyth was paid between £5,000 and approximately £10,000 per annum, which was not obviously unreasonable for the work she was undertaking.
However, from 2010 on, Mr Forsyth transferred increasing amounts of his salary, and in most years all or part of his own bonus, to Mrs Forsyth in order to reduce his tax liability.
The investigation uncovered that between 2010 and 2016, Mr Forsyth transferred just over £200,000 of his pay to his wife, and by the 2015-16 tax year, Mrs Forsyth’s remuneration was just over £52,000, more than any other SBMIA employee save Mr Forsyth.
As a result of these arrangements, Mr Forsyth paid approximately £18,000 less in income tax than he should have, the FCA said.
In late 2015, after internal concerns were raised about Mrs Forsyth’s remuneration, Mr Forsyth inappropriately involved himself in a subsequent investigation by an external auditor. A year later, he responded recklessly to an information request from the PRA.
“Mr Forsyth did not believe that his actions were permissible. He was aware that Mrs Forsyth only carried out a limited amount of administrative work and that the amount of her remuneration for that work was unjustified,” the FCA said.
“By deliberately arranging these payments to Mrs Forsyth, Mr Forsyth acted without integrity to his financial benefit.”
It explained that it has imposed a fine of £78,318 on Mr Forsyth for his lack of integrity, while an additional £76,180 fine has been delivered by the PRA.
Mr Forsyth has referred the decision notices to the Upper Tribunal where the parties will present their respective cases, following which it will determine what, if any, is the appropriate action for the FCA and the PRA to take.
Until then, all the findings in the FCA’s and PRA’s notice decision are provisional.