Board directors rate regulatory probes as greatest personal risk

An overwhelming majority of board directors (84%) said a regulatory investigation is the biggest personal liability they face, according to a survey by broker McGill and Partners.

The research also found that, in comparison, 47% of almost 100 board members surveyed believe a regulatory probe is the biggest risk exposure facing their company.

McGill and Partners said fears over personal liability follow a growing trend for actions against directors and officers.

It said board directors increasingly fear the personal implications of a regulatory investigation for bribery or corruption, fraud, accounting irregularities, cyber breaches or whistleblower claims at their company.

“In recent years there has been a trend globally of increased scrutiny on the activity of directors and officers, with a view to holding individuals accountable for corporate wrongdoing. This has led to a greater awareness and level of concern amongst directors,” McGill said.

As well as imposing significant regulatory fines on companies, individual directors can be held liable for investigations and fines, as well as disqualification and potential prison sentences.

AIG estimated defence costs per director for a typical prosecution by the UK’s Serious Fraud Office at £4m. This would only be covered by D&O insurance if the case is successfully defended and there is no admission or finding of guilt.

Noona Barlow, partner and head of financial lines claims at McGill and Partners, said it’s therefore vital that directors understand what their D&O policy covers.

“All too often, they simply aren’t aware and can find themselves personally liable and facing significant costs. While directors may expect their company to protect them in case of regulatory investigation, the company’s interest may no longer align with its current or former directors and therefore access to the D&O policy is vitally important,” she said.