Financial Solutions

Unauthorised Trading Insurance

Unauthorised Trading Insurance protects the company for financial losses sustained by the insured or for which loss the insured is legally liable, caused by intentional, unauthorised trading in securities, currencies, precious metals or other valuable properties or instruments traded in an open market.

Since the crash of Barings plc in the mid 1990s, there have been numerous reports detailing control measures and on management accountability. Increasing focus on corporate governance in Asia and the new Basel Accord itself are two consequences of the event which showed that even highly respected institutions are not immune to risks such as this, with catastrophic effects.

No system or procedure can fully protect against a unscrupulous trader (or a non-trader) from conducting unauthorised trades.

Employee Infidelity coverage restricts the policy to losses caused by employees who act with the intent of gaining financially and personally from his/her acts. Unauthorised trading losses on the other hand are often caused by employees who do not have such intents. One example of this was the case of a Mexican bank that lost US$75 million when a Mexican City trader exceeded his volumes by speculating in Mexican pesos against the dollar. The trader was hoping to be promoted and transferred to London, where his girlfriend resided.

The Unauthorised Trading policy addresses the problem that a discovery of unauthorised trading requests prompt action to prevent any further loss, action which in Crime Insurance cannot normally be reported to and dealt with as a normal insurance loss. This mitigation could also eventually lead to further loss, as one can never entirely predict the fluctuations in securities or in markets. This policy covers extended losses such as mitigation costs.

Who is covered?
The company for loss sustained by the company or for which loss the company is legally liable, and which loss is caused by unauthorised trading by an employee.

What is covered?
The insurer indemnifies the insured for losses sustained, including mitigation costs, plus costs, charges and expenses, as a consequence of intentional unauthorised trading by employees.

What is excluded?

• Insolvency
• Suspension of trading
• Wrongful acts by directors of the insured

When does the coverage apply?
Unauthorised Trading Insurance is written on a discovery basis, which means that the policy covers losses discovered during the policy period or the extension period, regardless of when the losses were caused. The most common ground for denial of a claim by an insurer is when the loss was actually known to the insured prior to the policy inception. The insured’s reporting procedures and the adherence/control of such procedures are imperative to ensuring that the insurance is effective in the event of a loss.

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