Why This Matters Under the Senior Managers Regime

The Senior Managers and Certification Regime was designed to make individual accountability real. Senior Managers can face regulatory action under the Duty of Responsibility, and they’re subject to the Senior Manager Conduct Rules. Even where no action follows, being interviewed, required to produce documents or named in an investigation can take months or years and involve significant legal cost.

Experienced Senior Managers know this. Increasingly, candidates ask about D&O cover and indemnities before accepting an offer, and firms that can’t answer clearly may lose the candidates they most want.

What D&O Insurance Typically Covers

D&O insurance protects directors and officers against the costs of claims made against them in their capacity as directors or officers. Policies vary considerably, but cover in regulated firms often includes:

• defence costs in civil claims brought by third parties, shareholders or the company
• costs of responding to regulatory investigations and proceedings, sometimes including interviews and formal requests for information
• costs of representation at inquiries or hearings
• in some policies, damages or settlements in civil claims where the law allows them to be insured.

Many policies define “insured persons” broadly enough to include senior employees who aren’t board directors, but that shouldn’t be assumed. A Senior Manager who isn’t a director should check that they’re covered by name or by role.

What It Can’t Cover

Regulatory Fines

The FCA’s rules in GEN 6 prohibit firms from entering into or arranging insurance that would pay a financial penalty imposed by the FCA. In practice, D&O policies don’t cover regulatory fines on individuals. The defence costs of an investigation may be covered, but a fine at the end of it generally won’t be.

Dishonesty and Deliberate Wrongdoing

Policies typically exclude losses arising from fraud, dishonesty or deliberate breaches, usually once established by a final judgment or admission. Defence costs may be advanced until that point, but may need to be repaid if the exclusion is later found to apply.

Other Common Exclusions

Policies often exclude prior known circumstances, claims already notified under another policy, and certain claims between insured persons. The detail matters, and wording differs between insurers.

Company Indemnities

Alongside insurance, many firms give directors an indemnity: a contractual promise to cover certain costs and liabilities. For companies, the Companies Act 2006 limits what an indemnity can cover. A company can give a qualifying third-party indemnity, but it can’t indemnify a director against, for example, a fine in criminal proceedings or a sum payable to a regulatory authority as a penalty. There are also restrictions on indemnifying the costs of proceedings the director loses.

A company can, however, lend a director money to fund their defence costs in civil, criminal or regulatory proceedings, subject to repayment if they’re unsuccessful. Many indemnities are structured around that.

Because the legal position is technical, both firms and individuals should take advice on the wording of any indemnity. It’s also worth checking whether the indemnity survives if the individual leaves, since investigations often begin long after the events concerned.

What Senior Managers Should Check

Before accepting a Senior Manager role, it’s reasonable to ask for:

• A summary of the D&O policy, including the limit of indemnity, whether it’s shared with the company, and whether it covers regulatory investigation costs.
• Confirmation that you’re an insured person, particularly if you won’t be a board director.
• The key exclusions, especially for regulatory matters and prior circumstances.
• Run-off cover, which protects you for claims made after you leave. Six years is common, but it varies.
• A copy of any indemnity, and whether it continues after you leave.
• Whether you can choose your own lawyers, and whether there’s separate representation if your interests conflict with the firm’s.

These questions belong alongside the other due diligence a Senior Manager should do, such as understanding the firm’s regulatory history and what they’ll inherit in their area.

What Firms Should Consider

Adequate Limits

A shared limit that looks generous can be used up quickly if several directors and the company face claims at the same time. Firms should consider whether the limit is adequate for their size and risks, and whether a separate side-A policy or dedicated limit for individuals is needed.

Regulatory Cover

For regulated firms, cover for regulatory investigations is essential. Firms should check that the definition of “claim” includes the kinds of regulatory processes their Senior Managers could face.

Consistency With Contracts

Indemnities, employment contracts and D&O policies should work together. Gaps or contradictions between them create uncertainty at exactly the wrong moment.

Telling Candidates

Firms recruiting Senior Managers should be ready to explain their D&O and indemnity arrangements early in the process. Clear answers help secure strong candidates. Evasive ones can lose them. It’s worth preparing a short summary that the hiring manager can share once a candidate reaches the final stage.

Fractional and Interim Senior Managers

Fractional and interim Senior Managers need particular care. They may work through their own company, hold roles at several firms and move on more frequently. They should check that each firm’s D&O policy covers them as insured persons, that run-off cover applies after the engagement ends, and whether they need their own professional indemnity cover as well. Firms engaging them should make sure the arrangements are documented in the engagement terms. SMF Capital’s guide to fractional and interim SMF cover explains how these appointments usually work.

The same questions apply to fractional finance leaders. FD Capital, a sister practice of SMF Capital, has placed fractional and interim finance directors since 2018, and cover for part-time officers is a regular part of those discussions.

Non-Executive Directors

Non-executive directors, including those holding Senior Manager Functions such as the Chair or a committee chair, face the same questions. Because they’re often less involved in day-to-day decisions, they rely heavily on the quality of information they receive and on the firm’s governance. Good D&O cover and a clear indemnity are part of what makes an experienced non-executive willing to join a regulated board.

The Bottom Line

D&O insurance and indemnities don’t remove the personal accountability that comes with a Senior Manager role, and they won’t pay a regulatory fine. But they can make the difference between being able to defend yourself properly and not. Senior Managers should check the cover before accepting a role, and firms should be ready to explain it. This article is general information, not legal or insurance advice; both firms and individuals should take specialist advice on their own arrangements. For more on what the regime expects of Senior Managers, see the Senior Manager Functions guide and the fit and proper test in full from SMF Capital.