Gallagher’s Financial Institutions team produces a monthly bulletin which reviews the insurability of the largest operational risk events reported recently.
The UK Financial Conduct Authority introduces new rules on complaints about authorised push payment fraud

Authorised Push Payment (‘APP’) fraud is a significant problem in the UK, with 43,875 cases and total losses of £236m in 2017. The fraud involves the victim being tricked into authorising the transfer of money into an account controlled by a fraudster. The Financial Conduct Authority has now expanded the obligations to handle complaints in line with the complaints handling rules in the FCA Handbook to receiving payment services providers (i.e. the payment provider receiving the victim’s funds). The new rules also allow victims to refer their complaints about receiving payment services providers to the Financial Ombudsman Service if they are unhappy with the outcome. We presume that these rule changes could lead to a significant increase in complaints against UK banks and other financial institutions. If so, professional indemnity insurance could be of particular importance.

The hidden threat of aggregation clauses

The recent Australian case of Bank of Queensland Ltd v AIG Australia Ltd [2018] has once again shown the importance of aggregation clauses in professional indemnity policies for financial institutions. Such clauses are designed to allow for multiple claims or losses to be treated as one claim or one loss for the purposes of the given policy. They are particularly significant where the insured financial institution is facing multiple claims, each of which falls below the policy’s retention. If the aggregation clause does not allow multiple claims to be treated as one claim and therefore collectively exceed the retention, then the insured is unlikely to obtain coverage for such claims. Indeed that was the outcome for Bank of Queensland Ltd in the recent case. It is therefore very important to consider the language used in aggregation clauses with a view to giving insureds the best chance of recovery. For further background on aggregation clauses, please see our recent circular: ‘What Lies Beneath: the hidden threat of Aggregation Clauses’.

Class actions in the UK

Recent press articles have suggested that the UK could be ripe for a significant increase in class actions. We understand that the UK has traditionally had a low incidence of class action type lawsuits as, amongst other things, there is a not a well-used procedure for such claims. However, the rise in litigation funders and the willingness of claimant law firms to attempt claims (including the recent failed £14bn claim against a major credit card provider), may suggest an increase is on its way. Given that two of the largest recent class action type claims in the UK were against two banks and related to such institutions’ equities, it is worth considering how financial lines insurance may respond to such claims. Indeed we understand that aspects of recent high profile UK claims may have been covered under the securities claim coverage under D&O insurance.