Indemnity

A contractual obligation in which one party compensates another for loss or damage. Common in payment agreements, custody arrangements, and vendor contracts. Protects institutions from liability in complex financial relationships.

Why it Matters

Indemnity clauses are critical in financial services because they clearly define who bears the risk when things go wrong. In payment processing, custody arrangements, and vendor relationships, multiple parties handle sensitive transactions and assets. Without proper indemnification, disputes over losses, fraud, or operational failures can lead to costly litigation and unclear accountability.

For financial institutions, well-structured indemnity provisions protect against unexpected liabilities arising from third-party actions, system failures, or regulatory breaches. They enable organizations to confidently engage with service providers, knowing the financial consequences of specific risks are contractually allocated. This risk allocation is essential for operational efficiency, regulatory compliance, and maintaining trust in complex financial ecosystems.