Pressure mounts on directors that fail to use hedging tools

A decision on the Equitable Life Assurance Society case in the UK is expected this month, on whether the company has the right to take its former non-executive directors to trial for failing to hedge risks.

If so, the case would be the first in the UK to raise the issue of personal liability for inadequate hedging, resulting in serious implications for those firms that have been slow to use derivatives.

For UK pension funds in particular - renowned for their tardiness in this area - this will only add to a multitude of existing pressures, which are already boosting demand for services to manage forex risks such as currency overlay.

"If the conclusion is guilty, then it will cause people to reassess their positions generally, which is good for the risk management industry," Peter Wakefield, managing director of research and product development at Record Currency Management in Windsor, told RiskNews' sister publication FX Week.

A senior official at a European bank in New York, who declined to be named, agreed: "This sort of case forces senior management in all firms to be aware of what’s going on in the company, and to take a greater look at all their policies."

Matthew Annenberg, global head of foreign exchange analytics and risk advisory at ABN Amro in New York, said most pension funds are now paying a lot more attention to currency risks. "We’re seeing a lot more focused interest on currency management in the strategic asset allocation and pension plans globally."