RC: In your opinion, have the risks and liabilities for D&Os of investment funds increased in recent years? What are the underlying reasons for this trend?

Vriens: There is certainly increased risk and liability for D&Os in this space. In terms of the underlying reasons, most of it goes back to pre-financial crisis practices that became apparent when the crisis hit back in 2008. What we are seeing is that many investors had significant losses in their investment portfolios following the financial crisis, which led to regulators and lawmakers taking specific action. There has been a lot of focus on more scrutiny for the entire financial services sector, and where at first this was mainly aimed at banks, we can clearly see regulators and lawmakers shifting attention toward the asset management space. This is reflected in the UK Financial Conduct Authority (FCA) asset management market study that is currently being performed, with the final report expected in early 2017. So the financial crisis did flush out a lot of malpractices around risk management, particularly around deficiencies in Know Your Customer (KYC), Treating Customers Fairly (TCF) and suitability of investment products, and that has led to a change in the legal framework. The legal framework itself has changed quite a lot in the last couple of years, particularly in respect of protection for retail investors – think about the UK’s Retail Distribution Review, for example – and that is going to continue to change going forward, for example when MiFID II comes into play, with an enhanced framework around investor protection and product suitability.

Jan-Mar 2017 Issue

Zurich Insurance PLC