I blogged recently on the recent Treasury announcement (still subject to Parliamentary approval) about the abolition of the presumption of responsibility under the senior managers regime (SMR), due to be introduced in the UK in March 2016. In the same publication the Treasury were careful to point out that:
The same tough underlying obligation will remain on the individual to ensure that they take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible
I could also tell you that buried in the same publication is the announcement that the Conduct Rules are to be extended to all non-executive directors of banks because:
…there may also be circumstances when it is appropriate to take enforcement action against NEDs, such as when a NED fails to act with honesty and integrity, and it is difficult to justify a position where enforcement action can be taken against relatively junior staff but not against board members.
At the risk of sounding like a stuck record (for those who remember vinyl), the new mantra for regulators both here and in the US is: “It’s all about personal accountability for senior managers”.
So this time round, and especially for those of my readers who are in fact senior managers, I thought I would instead come up with some practical steps for you to consider. The checklist which follows is not necessarily intended to be exhaustive, but assumes a healthy curiosity on the part of a senior executive or non-executive (either in post or considering an appointment) as to the nature and quality of the liability protections that might be available to him or her in the event of a problem with regulators.
Regulatory Liability Protection Checklist for Senior Managers
- With which categories of employee, at what level of seniority, do I share the D&O limit purchased by the company on my behalf?
- Is my D&O limit also shared with the company itself and, if so, in what respects and to what extent?
- Is access to my D&O insurance policy dependent on a failure or refusal by the company to indemnify me?
- Does the company agree to indemnify me in respect of all legal expenses (including, where I consider it necessary, seeking independent legal advice) in my capacity as a senior manager to the extent legally permissible?
- What cover, if any, is available to me to seek independent legal advice under the firm’s D&O insurance programme in pre-enforcement dealings with regulators?
- If the answer to 4 and/or 5 above is “No/None”, has the company considered purchasing additional legal expenses for me in pre-enforcement dealings with regulators?
- What restrictions are imposed (both by indemnity and insurance) on my freedom to select lawyers of my choice and in the conduct and control of my defence?
- Does the policy provide a mechanism under which insurers will advance all defence costs and legal representation expenses to me pending resolution of any dispute between the company and the insurers as to the extent of such costs ultimately covered under the policy?
- What protection do I have against future claims against me if I retire or resign during the policy period or if during such period the company is the subject or object of mergers and acquisitions activity?
- Does my D&O policy contain provision that enable me to take proceedings which clear my name in appropriate cases?