Article January 17, 2023

Financial institutions: Conversation starters

It is important that your financial institution clients understand the basic risks faced by their businesses.

  1. Have you considered your regulatory, contractual and capital requirements?

    - Many regulated companies are obliged to purchase professional liability (PI/E&O) insurance, and this is becoming more commonplace with the ever-increasing expectations of regulators.

    - Companies should ensure they implement suitable and satisfactory risk management systems in order to comply with regulations, and this includes procuring fit-for-purpose insurance.

    - Companies found to have inadequate professional liability insurance may be in breach of their capital requirements and loan covenants, as well as their clients’ or partners’ contractual demands.

  2. Are you aware of the current exposures facing your business?

    - Most claims made by businesses nowadays involve funds transfer fraud and some form of social engineering. Funds transfer fraud is often carried about by criminals leveraging fraudulent emails or phone calls to request the transfer of funds from a legitimate account to their own.

    - While financial institutions tend to have strong control processes, such as separation of responsibilities, they and their clients are at risk of falling victim to these types of attacks.

    - To mitigate the potential cost of these incidents, which can have crossovers in coverage (crime/theft and cyber), having a policy that can respond to all of these exposures is fundamental to a company’s risk management strategy.

  3. Do you know your personal assets are at risk?

    - Individuals can be held personally liable for any action taken during their time as a director, officer, c-level executive, board member, or general employee acting in a managerial/supervisory capacity.

    - During this time, the personal assets and estates of directors and officers, including those of their spouses, are exposed.

    - A claim can be brought on by customers, clients, competitors, contractors, third parties, employees, shareholders and lenders. Directors’ and officers’ (D&O) insurance is there to provide coverage for not only settlement awards but also defense costs.