How Does Civil Monetary Penalty Insurance Work?

Anyone who’s worked at a financial institution is likely familiar with the various regulations which with banks, credit unions and other companies in the financial sector must comply. Compliance training stresses that all employees have the responsibility to comply with any regulations affecting their direct job duties. What happens if you’re the bank director or an officer on the board of an institution under investigation? You may find yourself in need of civil money penalty liability insurance.

While all employees of financial institutions have a degree of responsibility when it comes to regulation compliance, individuals who hold leadership positions, such as directors and officers, are considered to have a much greater degree of personal responsibility than lower-ranking coworkers. In the event of an investigation, regulatory agencies may determine that a civil monetary penalty is an appropriate consequence for alleged wrongdoing.

Civil monetary penalties are different from other kinds of penalties that may be assessed against the institution itself. While many financial institutions may already have insurance that covers directors and officers, coverage for civil penalties are specifically excluded. An individual against whom civil penalties are levied must take responsibility for the payment, which can be a great financial burden.

However, individuals in leadership roles can seek civil money penalty liability insurance to cover losses incurred from these penalties. Policies may not cover defense costs, but they can offset a major loss once the deductible is met.