The Financial Sector
The introduction by the The Central Bank of the “Supervision and Enforcement Act 2013″ is probably the last major piece of legislation in a series of legislative changes which have completely re-shaped the regulatory infrastructure following the financial crisis. The emphasis has switched to one of personal liability as opposed a corporate sanction environment with the corresponding increase in the exposures of the directors and officers providing the relevant services.
Funds – Duties of Care
Investment funds by their very nature impose strict duties of care and diligence on all parties involved. While the legal entity may be defined as the specific SPV the duties and exposures can extend upwards to the parent vehicle, if the fund is part of an umbrella structure, laterally to all the officers within the vehicle and down to all the third party service providers.
Fund Directors Duties
The duties of Directors and Officers of Investment Funds go beyond merely ensuring that satisfactory due diligence has been carried out in relation to third party service providers. The duties extend to ensuring that the fund is being managed and the assets applied in a manner which is consistent with the investment memorandum and other promotional material issued in relation to the fund. The recent AIFMD makes specific reference to the requirement for all funds to carry sufficient insurance.
Excess, Aggregates and Umbrellas
Many polices carry a significant “Policy Excess” which can be on a per party basis, this means the individual may have to incur significant costs before the policy cover is activated, this needs to be identified, quantified and limited if necessary in advance of any role being taken up. . . All policies include limits of indemnity which are calculated on a “Policy Aggregate” basis and not a “per director” or even a “per claim” basis. It is important to establish how many parties will be seeking cover under a policy, and how the proportional limits and excesses are apportioned.
Many funds use an “Umbrella Structure” with a parent and a suite of sub funds. Using a single policy in these cases is extremely unwise as in the event of a claim it is likely that all parties within the umbrella structure will require legal representation and limits of indemnity will be breached very quickly