The Financial Supervisory Authority in Finland (FIN-FSA) has on 16 October 2018 published an interpretation that provision of insurance against administrative fines and penalty payments is contrary to good insurance practice and is therefore not permitted.
1. Interpretation of ‘Good Insurance Practice‘
According to the interpretation of the Financial Supervisory Authority (FIN-FSA), “it is contrary to good insurance practice to provide insurance against a risk where the insurance might encourage actors’ indifference to regulatory compliance and compromise actors’ obligation to comply with the respective regulations. Provision of insurance against such a risk is in conflict with generally accepted social values.”
‘Good insurance practice’ is a standard specified in the Finnish Insurance Companies Act. According to the standard, insurance activity must not only be formally legal, but also ethically sound, fair and just. The FIN-FSA is responsible for supervising insurance companies to ensure they comply with insurance legislation and good insurance practice.
The FIN-FSA states that its interpretation pertains equally to criminal fines as well as administrative fines and penalty payments, irrespective of whether they are imposed on the basis of a deliberate act, omission or negligence. It is also of no consequence whether they are imposed on a legal or natural person.
2. Possible implications
The question of the insurability of fines has arisen particularly in the context of the EU’s new General Data Protection Regulation (GDPR).
Limitation of GDPR related liability, including allocation of risk for administrative fines between the parties under the indemnification provisions, is a heavily contested subject in negotiations of data processing agreements (DPAs). Arguments have been made that the sanction regimes under Articles 82 and/or 83 of GDPR would be mandatory also inter partes and it would be against public policy for the parties to agree on different allocation of risk.
The parties of DPA are not, typically, subject to the standard of good insurance practice and the interpretation by FIN-FSA does not apply directly to the DPA provisions. However, the arguments set forth in this interpretation will probably be used in the DPA negotiations to support a party’s position when applicable.