Posted: 28th January 2016

This is not the title of a new game show. Instead it’s a question of vital interest to the regulators and stakeholders of financial services (FS) firms. That’s because under the unitary board system, non-executives are expected to play an important role in protecting the interests of depositors, clients and shareholders.

It’s not hard to list the desired qualities in such individuals such as integrity and experience combined with a range of relevant qualifications and skills. However, unlike the answer to the question in the title to the famous game show, the answer here is not so obvious.

Yes, the role is likely to be interesting, challenging, stimulating and rewarding, but against that there are a number of sobering factors to take into account.


Here’s a non-exhaustive list:

  • Under English law, non-executive directors are held to the same standard of skill and care as their executive counterparts
  • Under English law, a director cannot delegate his or her ultimate supervisory function
  • Financial services firms tend to be large, complex animals not always easily understood in terms of structure, products and services
  • Regulatory and operational risks for all FS firms are increasing, as are the cyber-related vulnerabilities they face
  • From March 2016, all non-executive directors of banks, building societies and insurance companies will be subject to the revamped Conduct Rules of the Financial Conduct Authority and the following year this will spread to all financial services firms
  • From March 2016 the Chairman, the respective Chairs of the Risk, Remuneration, Nomination and Audit Committees and the Senior Independent Director will additionally be subject to personal accountability under the Senior Managers Regime
  • The FCA now have up to six years in which to bring enforcement actions against individuals by which time they may no longer be in post


When weighing up any offer of appointment, individuals will want to conduct their own due diligence exercises into the institutions concerned and to negotiate carefully the terms of their appointment including, of course, the level of their remuneration. (In particular, they may wish to focus on their respective rights and obligations with respect to information sharing and document retention on termination of their appointments).

They are unlikely, however, to conclude that the financial rewards of accepting a part-time appointment match the unlimited personal and reputational liability exposures which they may face in the event of a serious claim.

That being so, well advised individuals will inevitably wish to consider the suite of protections available to them in the event that their conduct is called into question.

Perhaps “suite” may be too grand a word in this context. The only two protections generally available to directors are D&O insurance and company indemnification. Seeking professional input as to the adequacy and terms of these protections is certainly to be recommended and there is plenty to play for. But it is also perhaps worth being aware of certain shortcomings inherent in each of them.


  • D&O is designed to respond to liability for claims (including defence costs) which are made or investigations commenced against directors during a particular period of insurance. As such it provides limited - if any - protection in the absence of a claim or investigation against the individual concerned
  • The insurance limits themselves are usually shared between a large group of individuals which is rarely restricted to senior individuals (and often includes the company itself). Hence the limits are prone to rapid depletion and even exhaustion
  • Cover is often complex and comes with built-in restrictions and exclusions

What this means (among other things) is that D&O insurance is; a) not usually a resource dedicated to board members and; b) not available in circumstances where directors may feel the need for independent legal advice in the absence of a claim or of enforcement activity by regulators.


  • The company indemnity will be worthless in the event of company insolvency
  • A director has no automatic right to indemnity
  • Such rights to indemnity as he or she may have, may be further limited by: (a) statutory restrictions (b) the terms of any relevant contract (or deed poll) (c) the company’s willingness and appetite to indemnify based on its perception of the facts in each case regardless of any contractual commitment

What this means is that directors (perhaps particularly in circumstances where they have left the company) cannot be sure (no matter how comprehensive their indemnity is) that it will always and in all circumstances be honoured by the firm.


After all, despite all the fallout from the 2008 financial crisis, there have been very few examples of individual liability for corporate failures or losses. Moreover, in most cases, the interests of the firm and its board are fully aligned.

Quite apart from that, in order to attract and retain the right calibre and quality in their leadership teams, FS companies will naturally wish to offer every reassurance and resource to their boards – including the non-executives – to make them feel comfortable in discharging their roles.

For so long as everyone’s interests remain aligned (and the firm remains solvent) the answer is probably that none of this really does matter too much. The problem comes when interests of the individual and the entity begin to diverge. The danger is that this tends to happen just when a serious regulatory and/or liability issue arises.

Whereas the firm will wish to navigate a course through such dangerous waters as quickly and safely as possible with minimum damage to its reputation, the individual will naturally be more concerned in protecting his or her personal liability exposure and reputation.

The danger is perhaps especially acute when the conduct of the individual is subjected to scrutiny long after he or she has parted company with the firm. In a regulatory context, that may now for banking non-execs (as a result of changes wrought by the Banking Reform Act 2013) be up to six years after they have left.

If adequate attention is not paid to the potential for a later divergence of interest, the risk of a lack of funding for personal liability protection may be compounded by an inability to access the material on which any defence might otherwise be based. As the ancient Chinese proverb has it: “Make preparations before the rainfall. Don't wait until you're thirsty to dig a well."

Francis Kean, Executive Director, Willis Towers Watson


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