Directors and officers, and their insurers, are preparing for the introduction of a new offence under the Economic Crime and Corporate Transparency Act 2023. Taking effect Monday, the new rules hold large organisations criminally liable if they fail to prevent fraud by associated persons, increasing the personal and organisational risks that insurers underwrite.

While initially targeting large firms with turnover above £36m, assets over £18m, or more than 250 employees, the ripple effects of the new rules are expected to extend across supply chains, creating broader exposure for D&O policies.

“All businesses will increasingly be expected to demonstrate robust fraud prevention measures, either within larger corporates themselves or through the smaller businesses working as partners or in their supply chain,” says Craig Watson, underwriter at Kayzen Specialty.

Against this backdrop, Watson says the value of D&O cover and management liability insurance is underscored.

“These policies provide essential protection for individuals who may find themselves embroiled in legal action related to failures in fraud prevention,” he says. “As the scope of this legislation may well expand, so too will the potential for claims, making robust D&O cover a critical component of any risk management strategy.

“While Serious Fraud Office director Nick Ephgrave describes himself as “very, very keen to prosecute someone for [this] offence”, doing so in reality may be more difficult," Watson added. "The resource constraints of the regulators are likely to place the onus more on businesses to proactively mitigate the risk and enforce a culture where not only are there written procedures but also active monitoring, whistleblowing channels, and a culture of vigilance across all levels of staff.”

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