50 predictions: Directors’ & Officers’ and Financial Institutions

Published 11 septiembre 2018

Responsibility for artificial intelligence will fall on the board

Rapid technological development and artificial intelligence (AI) mean organisations are modifying their business models to retain competitive advantage. Innovation, however, brings new challenges for the board: which AI should be adopted; what machine-learning algorithms should the AI be taught; and what liabilities may arise if the technology fails? In addition, there are ethical considerations such as job losses within the business. Before introducing AI, directors should carefully balance the possible savings and efficiencies due to new technology with the consequential risks and liabilities that will need to be managed.

Fear of cyber-attacks will increase calls for response mechanisms

With cyber-attacks becoming increasingly commonplace, the fear of data theft, business disruption, reputational damage and regulatory fines is increasing calls for directors and senior managers to design and implement effective cyber management systems. Readiness can reduce the likelihood of a cyber-attack by identifying weaknesses in IT and the supply chain, contain cyber incidents so normal business

activities can resume swiftly and also minimise the damage, costs and fines emanating from an incident. With the possibility of fines of up to the higher of €20 million or 4% of annual global turnover for the most serious data protection breaches under the new data protection regime, directors and senior executives cannot afford to be complacent about the risk of cyber-attack.

Increased co-operation will bring more regulatory investigations, prosecutions and fines

Regulatory bodies will be focusing on increased co-operation with each other which will result in more effective use of the limited resources available individually to each regulator. Regulators are limited in their ability to delegate oversight responsibilities to ensure compliance with regulatory regimes so co-operation can only go so far. However, having recently experienced favourable outcomes to investigations and enforcement proceedings through greater co-operation between regulators, across different jurisdictions, regulators will be seeking to increase levels of co-operation. This will lead to increased and more effective regulatory action and ultimately sanctions against individuals.

Expect growing focus on health and safety responsibilities of directors and senior managers

Board decisions that fail to recognise the health and safety (H&S) and welfare of their organisation’s workforce and others affected by their activities will leave directors and senior managers exposed to personal liability, possible director disqualification and potentially the life-long stigma of a criminal conviction.

With more Health and Safety Executive prosecutions, successful conviction rates of 93% and average fines of £126,000 being imposed on companies, the potential impact of failing to comply with H&S legislation is severe. While punitive fines will not be covered by D&O or public liability insurance, the significant defence costs associated with H&S investigations and liability claims against directors are usually covered. D&O insurers should ensure businesses are identifying and managing the H&S risks facing their employees by adopting effective H&S policies and procedures, overseen by strong downward leadership.