Following the wake of the 2008 global financial crisis, the Securities and Exchange Commission instituted punitive fines against banking institutions and their directors and officers. Having a directors and officers insurance policy doesn’t protect the bank or individuals from a CMP. A civil money penalties insurance policy complements the D&O policy offering additional protection.
The SEC imposes the CMP fines on bank officials accused of wrongdoing. Violating securities law now requires payment of a civil money penalty to the victim of the violation. The money generated goes to cover the losses affecting investors. Not all CMPs are a result of violations of the securities law.
Currently, individuals can expect a maximum fine of $181,071 per violation. Entities have a potential $905,353 fine per violation. If the Stronger Enforcement of Civil Penalties Act of 2017 passes, the penalties increase to $1 million and $10 million respectively.
CMP liability insurance is often a rider under a D&O insurance policy to offer additional protection for bank officials when they receive a CMP fine. The other system is necessary to protect the institution and individuals adequately.
The banking industry took a hit following the global financial crisis and is still recovering. Civil money penalties insurance is one way to help recuperate losses imposed by CMP fines. Without that coverage, the bank could experience a severe financial loss.