CISA on PI-insurance

Professional Liability Exposure of Fund Managers

The revised Swiss Collective Investment Schemes Act (CISA), aiming at equivalence with the new EU Directive on Alternative Investment Fund Managers (AIFM directive), have specified the professional liability-standards for managers of collective investment schemes. Fund managers bear a professional liability for the following:

• loss of documents evidencing title of assets of the AIF;
• misrepresentations or misleading statements made to the AIF or its investors;
• acts, errors or omissions resulting in a breach of: legal and regulatory obligations, duty of skill and care towards the AIF and its investors, fiduciary duties;
• obligations of confidentiality, AIF rules or instruments of incorporation, terms of appointment of the AIFM by the AIF;
• failure to establish, implement and maintain appropriate procedures to prevent dishonest, fraudulent or malicious acts;
• improperly carried out valuation of assets and calculation of unit/share prices;
• and losses arising from business disruption, system failures, failure of transaction processing or process management.

In summary, the professional liability of an AIFM as defined by the AIFMD has become very onerous. Many of the ‘AIFMD-endorsements’, which insurers have brought to the market so far, do not provide coverage in the full meaning of the AIFMD. In fact, such endorsement – for the purpose marketing – often called ‘AIFMD-extension’ might even lure the unwary AIFM into believing that his policy were compliant with the AIFMD and – even worse – that his legal liabilities deriving from the AIFMD were fully covered.

In the context of this new regulation, it pays-off to engage a specialist broker who understands the specific legal requirements and can provide compliant solutions that can be integrated in either a professional indemnity insurance or an investment management insurance for fund managers.