The FSA hands down £2.3m penalty

The Financial Services Authority (FSA) fined the UK branch of Zurich Insurance (Zurich UK) £2,275,000 for failing to prevent the loss of customers’ confidential information.

The fine is the highest levied to date on a single firm for data security failings.

The failings came to light following the loss of 46,000 customers’ personal details, including identity details, and in some cases bank account and credit card information.

The loss could have led to serious financial detriment for customers and even exposed them to the risk of burglary, said the FSA in a statement.

Zurich UK outsourced the processing of some of its general insurance customer data to Zurich Insurance Company South Africa Limited (Zurich SA). In August 2008, Zurich SA lost an unencrypted back-up tape during a routine transfer to a data storage centre. Zurich UK did not learn of the incident until a year later.

Zurich UK failed to take reasonable care to ensure it had effective systems and controls to manage the risks relating to the security of customer data resulting from the outsourcing arrangement.

The firm also failed to ensure that it had effective systems and controls to prevent the lost data being used for financial crime.

Margaret Cole, the FSA’s director of enforcement and financial crime, commented: "Zurich UK let its customers down badly. It failed to oversee the outsourcing arrangement effectively and did not have full control over the data being processed by Zurich SA. To make matters worse, Zurich UK was oblivious to the data loss incident until a year later.

"Firms across the financial sector would do well to look at the details of this case and learn from the mistakes that Zurich UK made."

Zurich UK, which qualified for a cheaper penalty because it cooperated with the investigation, does not believe the personal data was compromised or misused.