Chances are that your directors and officers are assigned to their positions due to their ethical rigor and their knowledge of financial regulations. However, even the most educated and well-intentioned individuals might wander astray while navigating regulatory agencies’ notoriously draconian sets of rules. Protecting leadership and offering valuable peace of mind is a major reason that financial institutions maintain coverage for civil monetary penalties.

The Price of Peace of Mind

Despite the fact that protection from these penalties is, for many institutions, a contingency protection at most, this type of insurance coverage has come under increased scrutiny in a tightening regulatory atmosphere. Banks are less enthusiastic now to provide this type of coverage as part of their general coverage policy to protect their directors and officers from various losses.

A Personal Solution

Coverage for civil monetary penalties is now usually written in the name of each individual and paid for by that individual. In other words, civil penalties coverage is no longer necessarily part of a financial institution’s insurance structure. This allows individuals— rather than institutions— to take responsibility for acts resulting in such a penalty:

  • Misleading or untrue statements
  • Breaches of fiduciary duty
  • Neglectful actions or omissions

Although coverage for civil money penalties is held by each individual leader, the amount of each penalty is likely to be set at an institutional scale. It is therefore important to analyze potential risks and carry adequate insurance.