The three men ran up a £3 million deficit on clients' money, the regulator has said.
Three directors of cover provider BPS Insure have been banned by the regulator after running up a £3 million deficit in client accounts.
Robert James, Stuart Lawton and Paul Adams were found by an investigation from the Financial Services Authority to have misappropriated the funds in early 2005. The three men deliberately broke the rule that clients' money should be kept in a separate account, by using it to pay off the firm's business expenses.
Potentially, this could have led to there being no money left in the businesses own accounts to pay for any claims made by customers - a basic requirement for all insurance firms.
Delivering its verdict, the FSA said that the directors were well aware that what they were doing was wrong, the BBC reports. Since the misuse of funds, BPS has gone in to administration.
Jonathan Phelan, head of retail enforcement at the watchdog, added: "The directors of BPS acted recklessly and without integrity. They failed to ensure that clients' money was adequately protected and undermined consumers' confidence in the insurance sector.
"Senior managers must recognise their responsibilities - they are personally responsible and the FSA will take action against directors who fail to act appropriately when carrying out certain regulatory functions."
