Last year the FSA sent out a ‘Dear CEO’ letter to all relevant firms to check they were complying with its Client Asset Sourcebook (CASS) requirements. CASS sets out the rules on how firms need to treat clients’ money.

Towry responded stating that it was fully compliant.

However it failed to ensure the response was properly considered and it only became apparent that the firm was not compliant after a FSA visit to the firm in November 2010.

The failings of the firm were particularly significant as it resulted in inaccurate information being provided to the FSA and could have placed clients’ money at risk of loss or delay in distribution if Towry had become insolvent.

The fact that the breaches were only revealed during a visit to the firm was especially significant as there has been a high level of awareness about the importance of handling clients’ money correctly since the collapse of Lehman Brothers.

Tracey McDermott, acting FSA director of enforcement and financial crime, said: “Open and accurate communication with the FSA is of fundamental importance to the functioning of the regulatory system.

“It should go without saying that taking steps to ensure information provided to us is properly considered, up to date and correct is a basic regulatory requirement.

“It is very disappointing that Towry failed to do so particularly in an area of such regulatory importance. Firms should be in no doubt about how seriously we regard such failures.”

Towry’s agreement to early settlement meant it was entitled to a 30 per cent discount on the fine.