In the first case of its kind, the U.K. Financial Services Authority has fined Besso, a London insurance and reinsurance broker, £20,000 ($36,600) for failing to seek authorization for a member of its senior management team who, it subsequently emerged, had previous convictions for fraud.

The employee is also now being investigated for alleged frauds perpetrated while employed at Besso.

Although such a situation is rare, some believe the FSA’s action gave an important message to regulated companies. “This may have been an isolated case but it had very serious implications,” says Ian Mason, a partner at law firm Barlow Lyde & Gilbert. “The FSA clearly wants to send out a warning to other companies that they must take these background checks seriously.”

The Financial Services and Market Act requires that all firms apply for authorization from the FSA before appointing officials to senior management positions.

“This highlights the need for the insurance industry to abide by the rules when appointing officials to such positions. They must follow through with reference checks and seek FSA approval,” says Mason. “This was a small fine, but if the FSA finds that the problem is larger and more systemic in another firm, the fine will undoubtedly be significantly increased.”

This case is also the first time that the FSA has used its new discount scheme for fines. Besso received a 30% reduction on its fine for taking appropriate action and settling the case at an early stage.