FCA to Name and Shame? - Reputation Management and Your Insurance

The FCA’s announcement in February 2024 that it was consulting on publicising the name of firms and individuals subject to regulatory investigations prior to the conclusion of the investigation process[1] caused an unprecedented reaction from industry and government.  The directors of Carillion and others have experienced the personal impact of claims being thrust into the media spotlight.  Using insurance to cover legal costs in defending against claims and responding to investigations is well known.  What, though, is its place in dealing with broader reputational concerns?

No Way FCA

First, a brief look at the FCA proposals, and the somewhat strident response.  The case for the prosecution (/the FCA) is that publication of details of investigations in certain circumstances, including those firms and individuals subject to the action, increases transparency. Customers that have a grievance, whistleblowers or other relevant witnesses may only come forward if they are made aware of a pre-existing investigation.  Publicity may also deter future breaches and provide public reassurance.  The FCA maintains that it would only publish details of investigations where it is in the public interest. 

Defenders of the status quo, arguing for publication of names only following a sanction, are not hard to find.  On 26 April 2024, a number of trade bodies including the City of London Corporation, the Association of British Insurers, and PIMFA wrote directly to the Chancellor, Jeremy Hunt, asking that he intervene [2].  The letter expressed concerns about the impact on the business of firms, on the wellbeing of individuals, and on the competitiveness of the UK financial services market.  On 30 April 2024, the Chancellor asked the FCA to reconsider its proposals, and City Minister Bim Afolami was even more outspoken in May[3], declaring that the FCA “still does not get it”.

So far, the FCA has held firm, but the debate lingers on.  With a new government a serious prospect in the near future, it may be some time before a final decision is made.  Whatever the outcome of this particular consultation, adverse publicity from claims and investigations is a risk for all businesses.  Court claims are usually a matter of public record and, as the FCA points out, other regulators publish information on investigations well before a final decision.  Can Professional Indemnity policies (also known as Civil Liability or Errors & Omissions, and primarily concerned with covering entities) or Directors & Officers insurance (main purpose to protect individuals) help with those costs?

PI for PR

The answers “maybe” and “it depends on the policy wording” are candidates for words to be etched onto my tombstone.  Nonetheless…

Look out in the Professional Indemnity policy for references to Public Relations consultants, Crisis Communications, and similar.  The precise scope of the cover and when and whether it triggers (for example, does it cover Investigations as well as Claims, and will it cover brand management rather than costs that might reduce the legal claim) will, ahem, depend on the policy wording. 

Any cover is likely to be sub-limited, and will be subject to insurer consent.  As ever, there is benefit to engaging with insurers early and often.  But the message is that cover exists and can be used to manage incidents from a PR as well as a legal perspective.

D&O and the media spotlight

Sat at your desk or on the train as you read this, I expect you would be able to come up with a list of companies whose directors have faced legal claims, investigations and disqualification and other proceedings in recent times.  Whilst the names of individuals may not be at the tip of your tongue, they are easily discoverable online.  Public inquiries and parliamentary select committee hearings put individuals at the heart of news bulletins and bring them into our living rooms.  The reputational impact to individuals can be devastating for careers. 

The starting point of cover for individuals under D&O is similar to that for companies under Professional Indemnity cover.  However, it may be possible to obtain broader cover for damaging media stories that do not amount to a claim or investigation.  There may also be cover to assist with the dissemination of a positive news story in the event a claim is defended successfully.  It will all depend on…well, you know the rest…

Whilst a D&O policy is primarily to cover individuals (or the company’s indemnification of individuals), many policies will contain some form of cover for the entity’s own losses.  That is usually limited to claims related to debt or equity securities. An extension that has been in the market for some time provides PR costs for responding to major incidents (e.g. an investigation, debt default, or death or resignation of key directors) that impact share price.  More recently, there have been attempts to expand wordings further than a loss of share value, potentially making the cover of utility beyond listed companies.

What Insurance?

A key to accessing insurance and utilising it effectively is that those incurring the costs know that the insurance exists, understand in a broad sense what it covers, and are linked sufficiently to those running the insurance programme.  That connection on legal costs is generally well established.

It is less instinctive for those making decisions on media and PR campaigns to think automatically of insurance when responding to an event.  Organisations should consider the cover they have, and how departments will interact (and interact with insurers) in a relevant situation.  The fast-moving nature of reputation incidents in the social media fuelled modern world, and the need to obtain insurer consent promptly, necessitate doing this work before an event arises.

Insurance for the modern world

With 24-hour news, social media on tap, and tech entrepreneurs everywhere fighting for our attention, the line “A lie can travel halfway around the world while the truth is still putting on its shoes” has never been more relevant.  Insurance has always evolved to meet demands, and to respond to client needs in new and innovative ways. 

Public relations costs is one way that, in recent years, the market has started to provide cover for incidents that goes beyond the compensation payable to claimants and legal costs, in order to assist with the broader business impacts of a claim.  We believe policies will continue to develop in this area, and encourage clients to review the cover available in their current insurance programme and consider how they would access that support if the time comes.