Company law in most jurisdictions gives directors a set of personal duties: to act within the company's constitution, to promote its success, to exercise independent judgement, to apply reasonable care skill and diligence, to avoid conflicts of interest and to declare interests in transactions. These are owed to the company, and they are owed by every director, whether executive, non executive, or appointed as a favour to a friend who needed a local name on a form.
Financial services regulation adds a second layer, and this is the one that surprises people who have run companies in other sectors. Supervisors do not only license firms. They approve, and can withdraw approval from, individuals. They allocate specific responsibilities to named people. And when something goes wrong, they can act against the individual as well as the firm.
The regulatory layer: approval, allocation, accountability
The shape differs by jurisdiction but the pattern repeats. Certain roles cannot be held without regulatory approval, and approval turns on an assessment of honesty, integrity, competence and financial soundness, the test we cover in fit and proper tests. Some jurisdictions go further with a senior managers regime, where individual responsibilities are written down in a statement, allocated to named people, and mapped so a supervisor can see who owned what at any date. The United Kingdom's senior managers and certification regime is the most developed example, and similar accountability concepts have been adopted or proposed elsewhere.
What that machinery does is remove the collective defence. Where responsibility for client money, or for financial crime controls, is allocated to a named person, that person cannot say the board handled it. The compliance and money laundering roles carry this most sharply, which is why the appointment described in the MLRO role should never be treated as a title handed to whoever has capacity.
Insolvency is where personal exposure gets real
The clearest financial exposure for directors is not usually a regulatory fine. It is insolvency law. Many jurisdictions provide that once directors know or ought to conclude there is no reasonable prospect of avoiding insolvent liquidation, they must take every step to minimise loss to creditors. Continuing to trade past that point, taking new client deposits or new challenge fees while the firm cannot meet its obligations, can expose directors to personal contribution claims brought by a liquidator. Misapplication of client money adds further routes, and in the worst cases there are disqualification regimes that bar an individual from acting as a director for a period.
For prop firms this has a specific edge. A firm that keeps selling evaluations while it cannot fund the payouts already earned is, on any reading, taking money it may not be able to honour. That is a commercial failure to the founders and something considerably more serious to a liquidator or a regulator. The rules for handling client money in a failure are described in winding up and client money, and the sequence there is not optional.
This article is general information about how liability regimes work. It is not legal advice, and duties, defences and limitation periods differ by jurisdiction. If a firm is approaching distress, take insolvency advice immediately rather than later.
The nominee directorship problem
A recurring arrangement in offshore structuring is a local individual appointed as director to satisfy a residency requirement, paid a modest annual fee, with a private understanding that they will not be involved in decisions. Legally, that understanding is worth very little. The duties attach to the office. A director who does not know what the company does has not avoided the duty of care, they have breached it.
The mirror image matters as much to founders. A person who is not formally appointed but who instructs the board can be treated in many jurisdictions as a shadow or de facto director and can be brought within the same duties. Structuring a company so the real decision maker holds no title does not put them outside the regime, and it creates a governance record that reads badly to any supervisor. Where genuine local directors are required, our note on local director requirements covers what regulators expect them to actually do.
What reduces exposure in practice
The defences that work are evidential. A director who can show they were informed, asked questions, received management information and recorded a dissent is in a different position from one whose only trace is a signature on annual accounts. That means board minutes that record substance rather than attendance, a management information pack that goes to the board on a schedule, and a record of what was escalated and when.
It also means insurance and indemnities, with their limits understood. Directors and officers cover is standard in the sector and typically responds to defence costs and certain civil claims, subject to exclusions that commonly include deliberate dishonesty and, depending on the policy and jurisdiction, some regulatory penalties. A company indemnity may be restricted by law in respect of liabilities owed to the company itself. Neither instrument makes a regulatory prohibition go away.
The last piece is the least discussed. Records. Regulatory and insolvency questions arrive years after the events, and the ability to reconstruct what the firm knew on a given date depends on systems nobody thought of as governance tools. Trade records, client communications, approval trails and change history are the raw material, which is why audit trails are worth building before anyone needs them. A director defending a decision from three years ago is entirely dependent on what the firm kept.
"People sign a directorship for a licensed entity the way they sign a delivery receipt. They are signing up to answer personally for how that firm is run."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- Limited liability protects shareholders from company debts, it does not remove the personal duties a director owes.
- Accountability regimes allocate named responsibilities to individuals, which removes the defence that the board handled it collectively.
- Trading on past the point of no reasonable prospect of avoiding insolvency can expose directors to personal contribution claims and disqualification.
- A nominee directorship carries the full duty of care, and an unappointed person who directs the board can still be treated as a director.
Frequently Asked Questions
Can a director be personally liable if the company is a limited company?
Yes, in defined circumstances. Limited liability protects shareholders from the company's debts, but directors owe duties personally, and insolvency law in many jurisdictions allows claims against directors who continued to trade when there was no reasonable prospect of avoiding insolvent liquidation. Regulatory regimes can also act against approved individuals directly.
Is a nominee director really exposed if they take no decisions?
The duties attach to the office rather than to actual involvement, so being uninvolved tends to be evidence of a breach of the duty of care rather than a defence to it. Anyone accepting a directorship for a fee should understand what the firm does and receive real information about it.
Does D&O insurance cover regulatory penalties?
It depends entirely on the policy and the jurisdiction. Cover commonly responds to defence costs and certain civil claims while excluding deliberate dishonesty, and treatment of regulatory fines varies and is restricted by law in some places. Read the exclusions with a broker rather than assuming the cover is broad.
About the Author
Roman Onta is an Executive Director at SINGUARD. He builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals side by side with his brother Alex Onta, and he helped on the design of eTrader, the division Alex built and leads. His ground is worldwide payment processing, AML compliance and the corporate structures brokers are built on, work the two of them carry together, shaped by executive roles in the UAE and international corporates. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.