The recent case involving Ernst & Young (EY) and its alleged negligence in the management of a Luxembourg-based company has brought to light a crucial issue in the world of auditing and professional services: the transparency of professional liability insurance. The persistent refusal of EY to provide references to its mandatory insurance policy, despite repeated requests, raises serious questions about the firm's commitment to transparency and its respect for legal obligations.

The Legal Requirement for Professional Liability Insurance

In Luxembourg, as in many other countries, professional service providers, including auditors, are legally required to hold professional liability insurance. This requirement is enshrined in law to protect clients and stakeholders from potential losses arising from professional negligence or misconduct. The law of July 23, 2016, which regulates the audit profession in Luxembourg, clearly stipulates this obligation.

The Case of EY and the Missing Insurance Information

In the case involving EY and its alleged mismanagement of Ixellion SA, a company with a capital of over 1 billion euros, the auditing firm has repeatedly failed to provide references to its professional liability insurance, despite numerous requests from shareholders and other interested parties. This lack of transparency has hindered the ability of shareholders to seek compensation for their losses, potentially saving EY significant sums in legal costs and damages.

The Importance of Transparency

Transparency is a cornerstone of trust in the professional services industry. Clients and stakeholders have the right to know that the professionals they engage are adequately insured against potential liabilities. The refusal to provide this information not only breaches legal obligations but also undermines confidence in the integrity of the service provider.

In the case of EY, the failure to disclose insurance information has compounded the concerns arising from the allegations of negligence. It raises questions about what the firm might be trying to hide and why it is so reluctant to comply with a straightforward legal requirement.

The Role of Regulatory Bodies

This case highlights the critical role that regulatory bodies, such as the Commission de Surveillance du Secteur Financier (CSSF) and the Institut des Réviseurs d'Entreprises (IRE) in Luxembourg, must play in enforcing transparency. These bodies have the power and the responsibility to ensure that professional service providers comply with their legal obligations, including the requirement to hold and disclose professional liability insurance.

In the EY case, the apparent inaction of the CSSF and IRE, despite being informed of the situation, is concerning. It is essential that these regulators take swift and decisive action to compel EY to provide the required insurance information. Failure to do so risks undermining public confidence in the regulatory system and the professional services industry as a whole.

The Need for Public Access to Insurance Information

To enhance transparency and protect the interests of clients and stakeholders, there is a strong argument for making professional liability insurance information publicly accessible. In the age of digital platforms and instant information, it would be relatively simple to create a public database where professional service providers are required to submit and update their insurance details.

Such a system would allow potential clients to easily verify that their chosen service provider is adequately insured, without having to rely on the goodwill of the provider to disclose this information. It would also act as a deterrent against professional misconduct, as service providers would know that their insurance status is open to public scrutiny.

Conclusion

The case of EY and its alleged negligence in Luxembourg has underscored the vital importance of transparency in professional liability insurance. The refusal of the firm to provide insurance information, despite legal obligations, is a red flag that cannot be ignored.

This case should serve as a wake-up call for regulatory bodies worldwide. They must be proactive in enforcing transparency and ensuring that professional service providers comply with their insurance obligations. The creation of a publicly accessible database of insurance information would be a significant step towards greater transparency and public trust.

As the legal deadline for EY to provide its insurance information looms, the world is watching. The outcome of this case could have far-reaching implications for the professional services industry and the way we think about transparency and accountability. It is time for regulators to act decisively and for the industry to embrace a new era of openness. The stakes, both financial and reputational, are simply too high to do otherwise.