Gallagher’s Financial Institutions team produces a monthly bulletin which reviews the insurability of the largest operational risk events reported recently.

Problems for the Woodford Equity Income Fund

It has been recently reported that the Woodford Equity Income Fund is currently gated following liquidity issues preventing redemption requests being met. The fund’s manager, Neil Woodford, is a major figure in the UK fund management industry and the latest developments have been getting significant press attention. We have been following events with interest as it appears that it could involve several areas where insurance could respond.

First, we understand that the Financial Conduct Authority has launched an enforcement investigation into the episode. Both D&O and Professional Indemnity insurance can provide coverage for costs incurred in responding to non-routine regulatory investigations into the affairs of a regulated firm or its directors.

Second, we presume that investors who are currently unable to redeem their investment could initiate litigation against the fund, its directors, its third party service providers and its manager. Of course both D&O and Professional Indemnity insurance are designed to respond to claims by investors. Indeed many financial lines policies were notified following the widespread gating of funds in the wake of the 2008 financial crisis. It is likely that insurers will also be watching events closely – if the current problems of the Woodford Equity Income Fund are also experienced by other fund groups, then they may modify their approach to the fund sector.

Source: The Financial Times, 2nd July 2019

UK public companies and US securities class actions

Many non-US companies, including over 200 UK companies, provide US investors access to invest in their shares by issuing American Depository Receipts (ADRs). The least regulated ADRs are Level 1 ADRs which are traded over the counter and are not listed on a national exchange such as the NYSE. Level 1 ADRs can either be ‘sponsored’ or ‘unsponsored’. Unsponsored ADRs are ADRs where the depository bank, without the involvement or possibly even the consent of the non-US company, issues the ADRs. Sponsored ADRs are at the request, and with the cooperation, of the non-US company.

A recent ruling in a long running US securities class action against Toshiba (a Japanese-headquartered company) may cause concern for UK companies with unsponsored ADRs. The action against Toshiba was initially dismissed on the basis that US securities laws did not apply to over the counter transactions in Toshiba’s unsponsored Level 1 ADRs. However, the dismissal has now been reversed. It is yet to be seen whether the claim will ultimately succeed – the plaintiffs have only been given permission to amend their complaint and the case has been appealed to the US Supreme Court.

However, the fact that a US court has been willing to allow a class action against a non-US company with unsponsored Level 1 ADRs should be concerning for UK companies (and any other non-US companies) with unsponsored ADRs. D&O insurance can assist in such circumstances, as policies often provide coverage for US securities class actions against individual directors and, where Side C/Corporate Securities Claims coverage is purchased, the company itself.

Source: aig-uk-companies-and-scas-adrs.pdf publishes table showing the top 10 operational risks for each year since 2010

The table produced by, which collates the operational risks that have appeared on lists since 2010, reveals some interesting points:

(a) The top operational risks since 2013 have all been cyber based:

  • 2013: IT sabotage
  • 2014: Data theft
  • 2015: Cyber risk
  • 2016: Cyber risk
  • 2017: Cyber risk and data security
  • 2018: IT disruption
  • 2019: Data compromise

(b) Regulatory fines; Outsourcing/Third party risk and Theft and Fraud have featured prominently in the last three years

(c) Certain risks feature one year and then don’t feature in subsequent years. For example, the threat of terrorism was flagged in the 2016, following the two major attacks in Paris. It has not featured since.

Source: – Lessons from a decade of top 10 risks