The PRA’s Senior Insurance Managers Regime (SIMR) and the FCA’s revised Approved Persons Regime (APR) have implemented a streamlined version of the Senior Managers and Certification Regime (SM&CR) to the insurance sector.
Now, as insurers are busy preparing to implement the additional requirements of the SMCR, it is useful to understand how the new regime differs from SIMR and APR. While many of the requirements within SMCR are similar those set out under the SIMR, many of the changes are significant.
Here, we outline the twelve key changes to help clarify the new regime for insurers.
Key changes for SMCR
1. Senior Management Functions
FCA-designated Senior Management Functions (SMFs) will replace Controlled Functions (CFs) currently applying under the APR. The PRA’s SIMF functions are to be re-named SMF functions.
In general, under SMCR, firms will have fewer FCA-designated SMFs than CFs.
2. Amended scope to the Compliance Oversight Function
The Compliance Oversight function has been widened to cover all FCA regulatory requirements.
The FCA’s current Compliance Oversight function (CF10) applies to life insurers only in relation to certain parts of the FCA Handbook. Under SMCR, the Compliance Oversight function will apply to all insurers for all requirements of the regulatory system for which the FCA is responsible.
3. New ‘Duty of Responsibility’
SMCR introduces a statutory requirement for senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility. If a firm breaches a regulatory requirement, the Senior Manager with responsibility for the area in which the breach occurred could be liable to enforcement action if they failed to take “reasonable steps” to prevent the breach from occurring or continuing.
4. Statements of Responsibility
The ‘Scope of Responsibilities’ document required under SIMR will be renamed "statements of responsibility" under SMCR and will need to contain a fuller description of duties.
5. Responsibilities Maps
Governance maps which were required for Solvency II firms and large NDFs under SIMR will be renamed "responsibilities maps".
6. New Handover Requirement
SMCR will require Solvency II firms and large NDFs to take all reasonable steps to ensure Senior Managers are provided with the information and materials they could reasonably expect to perform their responsibilities effectively. They must also have a policy explaining how they comply with this and maintain records of the steps taken.
7. An expanded list of Prescribed Responsibilities
The PRA has amended some of the prescribed responsibilities set out in SIMR and the FCA has specified additional prescribed responsibilities. Firms will need to review the new and amended prescribed responsibilities and allocate them to appropriate Senior Managers.
8. New Certification Regime
The Certification Regime will replace the Approved Person Regime (APR). This requires firms to certify as ‘fit and proper’ any individual who performs a function that could cause significant harm to the firm or its customers.
Solvency II firms will already have identified material risk takers for Solvency II remuneration purposes. The FCA and PRA have each detailed a list of certification functions. The FCA has defines Certification functions more broadly than the PRA. Firms need to be aware of the different PRA and FCA definitions of significant harm function.
Once identified, firms should assess certified persons as fit and proper both at recruitment and annually and issue a certificate. Firms have a year from the commencement date to carry out the first assessments. As SIMR already requires firms to assess the fitness and propriety of key function performers annually, the process will be familiar to many firms.
9. Conduct rules will apply to most staff
Under SMCR the regulators can apply enforceable Rules of Conduct to all non-ancillary staff working at a firm. Under SIMR, the conduct rules applied directly only to individuals in insurers who required pre-approval by the PRA or FCA to perform a controlled function.
Staff must be trained on the conduct rules and training should be tailored to the role. Senior managers and certified persons will need to have been trained by the commencement date of the new regime, while firms have 12 months from commencement to deliver the training to all other staff.
10. New regulatory notification duties
SMCR introduces new notification requirements in relation to conduct rule breaches which firms will have to reflect in their regulatory notification policies.
11. New Regulatory Reference Requirements
Under SMCR, insurers seeking to appoint someone to a Senior Manager or a Certified role must request a regulatory reference from the candidate’s past employer(s). This requirement will also apply to all NEDs who aren’t Senior Managers. The requirements build on existing obligations on firms to provide all information relevant to the fit and proper assessment of the hiring firm.
SMCR also requires firms to update new employers where new information comes to light. A certificate as to fitness and propriety cannot be issued until references have been received.
12. Enhanced Criminal Record Check Requirement
The SIMR already requires criminal record checks to be carried out on prospective Senior Managers. Under SMCR, this will also apply to NEDs who are not Senior Managers where a fitness requirement already applies to them.
Once in force, the extended SMCR will replace the SIMR and the APR. The extension of the Senior Managers and Certification Regime (SMCR) to dual regulated insurers takes place on 10th December 2018, with FCA solo-regulated firms following in December 2019.
If your firm is in the insurance sector, it’s imperative that you are preparing for the SMCR now. Implementing the new regime will require detailed preparations and a review of, and amendment to, numerous current policies and processes.