Broker offers cover for costly FCA investigations

Hedge fund and investment management companies may not be properly protected against the potentially disastrous effects of a Financial Conduct Authority investigation, a leading insurance broker has warned.  

The costs incurred with an FCA ”Section 166” enforcement notice range from hundreds of thousands of pounds to several millions pounds, but many FCA regulated companies will not be adequately insured.  

Charles Wintour, managing director of Allegiance Insure discovered the problem when a Hedge Fund client asked about the precise areas covered by their policy.  

”The hedge fund manager asked me specifically about a section 166 investigation,” he said.  

”The client assumed that it was covered by the policy. I’m afraid I had to say that in fact it wasn’t. We were asked if we could find an insurer who would cover these costs but so far as I am aware there are no insurers who will cover an FCA regulated entitity specifically for the cost of an FCA S166 Investigation”.   

Cover for costly FCA investigations

Costs incurred by individuals will be covered by Directors and Officers liability insurance, but Section 166 reviews are focused on the firm as a corporate entity and a D&O policy does not extend to corporate costs incurred in these types of investigations.  

“The minimum costs of a skilled person review of this type are usually in the region of £250,000 and they can run into several million pounds,”  Wintour said.  

”The total cost of Section 166 investigations between 2013 and 2015 was more than £200 million. The companies who carry out the S166 reviews are normally top flight accountancy or law firms and their fees are very high.”  

Wintour decided to create a tailor-made product himself to meet his client’s needs. The policy covers the costs of the investigation and legal advice from top professional services firm RPC on how to prepare for the review and co-operate fully with the regulators.  

”Section 166 investigations are not only costly, they can cause serious reputational damage,” Wintour said.

It will also divert the management away from the core business. ”The policy really is an essential purchase. If you are not properly covered the effect of a prolonged investigation could be absolutely catastrophic.”