Financial firms face more risks

MANILA, Philippines - Financial institutions such as banks, insurance companies and fund managers are now offering more complex products and services for the maturing investing public.

But they are also opening up themselves to increased risks that may place them and the investing public in a precarious situation.

According to the American International Group Inc. (AIG), financial institutions also faces various liabilities arising from such complex services and products.

These include higher exposure to negligence, errors and omissions in serving clients such as incorrect advice, and non-delivery of promised results/services.

But there are insurance products that are designed to protect financial institutions as well as their directors and officers.

AIG for example offers directors and officers (D&O) policy, financial institution professional liability policy, financial institution crime (BBB) policy, and cyber crime policy.

AIG Regional Financial Institution expert Ethan Tay said aside from these professional risks, Philippine companies are also challenged in the face of globalization and the Asean regional integration starting 2015.

“Philippine firms are not at par with its regional neighbors in terms of professional protection which is a requirement in most of Asia, particularly those list in their respective stock markets,” Tay said in a briefing.

In a study, only 15 percent of the listed companies in the Philippine Stock Exchange (PSE) have professional insurance such as the D&O policy.

These are mainly conglomerates, which have business dealings in the region such as Smart Communications and SM Investments Corp.

Over 90 percent of listed companies in Hong Kong, and 45 percent of publicly listed firms in Indonesia are D&O covered.

The AIG expert warned that the same firms would likely deal with corporations that have the same type of coverage, especially if they plan to enter into equity-based relationships.

Attracting foreign direct investments (FDI) may likewise endanger the country’s drive for greater economic growth.

“Cross border trade, possible mergers & acquisitions (M&A), and the swelling FDIs means that there will be a lot of corporate activities, and danger of fraud or wrong corporate decisions becomes inevitable,” AIG Philippines president and chief executive officer Mark Lwin warned.

He said that it is a measure of professionalism and corporate governance for the corporate world, after the two previous financial disasters.

Meanwhile, professional insurance also protects the company from fidelity or criminal losses arising from employee stealing or misappropriation of money; or employee committing fraud with a third party. There is also protection from third party crime such as robbery, break in and burglary.

Then there is cyber crime which impact on data privacy regulation, increasing reliance on technology and online transaction, information stored online, and company system linked to the Internet.

The company is protected, according to AIG, from legal action due to breach of Data Privacy Act 2012, and hacking and virus attack.