“Directors' and officers' insurance” is often the only means by which a compliance officer can obtain enough funds to hire a lawyer to fight his patch when his employing bank ceases to support him during an investigation.

In this third section of our serialised interview with regulatory defence lawyer Sara George of the City law firm of Stephenson Harwood, we ask about insurance cover and what it means for compliance officers.

Q: Where is a directory, or do you have, or have you ever seen, a directory of insurance cover? I ask because I know that D+O cover is the best way of paying for compliance officers' legal costs but it's not just D+O. For example, back in 2001 when this whole issue first came to light, the Futures and Options Association came out with its own insurance policy. It was quite cheap, I seem to recall!

A: It was incredibly cheap, and that's the problem. The costs of these investigations are now enormous ...I don't think you'd get a policy like that again. I remember seeing policies being sold for about £1,500 that ended up claiming on £2 million of liability cover for.

Q: So nobody's doing adequate cover now except D+O?

A: The best and most economical insurance cover will still be done through the institution. The important thing is to ensure that compliance officers have the right degree of cover for what they need, that the exclusions are adequate and that there isn't an excess that you require the firm to indemnify you for when you've got no contractual right to be indemnified.

So those are the problematic areas, but banks – particularly large banks – often self-insure. That means that there isn't any insurance and they have a policy on indemnification which basically says “we can withdraw cover at any time we see fit,” which effectively means you are uninsured in those circumstances.

So it's really not suitable. So if people have self-insured policies, either you'd want a contractual indemnification or alternatively you'd want the right to go and buy a different insurance policy if that's what you need to cover you.

Q: Contractual indemnification – what's that? The contract with the bank?

A: Yes, the bank will pay your legal costs in the event that you are subject to a regulatory investigation in connection with your duties at the bank.

Q: Do banks tend to say “we definitely don't want to put this in the contract”? Or is it just a case of 'some do, some don't'?

A: Some do, some don't. Those institutions that know they are never not going to have a regulatory investigation do. There are some banks that take it as a matter of internal policy that they must have the very best insurance coverage possible because they know that any senior manager [who has been] is likely to find himself involved in a regulatory investigation at some point. So my suggestion would be that, if you're in one of those banks, the likelihood is that the cover is pretty good but a lot of the international banks (rather than the British ones) do tend to have this self-insurance policy. I have a number of individuals who have sought to rely on their self-insured policy and the bank has exercised its discretion to say no and they've been left high and dry.

* Sara George can be reached on +44 20 7329 4422 or at Sara.George@shlegal.com