The extension of the Senior Managers and Certification Regime (SM&CR) to dual regulated insurers takes place on December 10th 2018. If your firm is in the insurance sector, it’s imperative that you are preparing for the SM&CR now.
Preparing for SM&CR
To ensure you are ready for December 10th, you can start by identifying the key areas that need to be addressed.
1. Understand which rules apply to your firm
SM&CR requirements are being applied proportionally. All insurers will be subject to the FCA Certification regime, Fit and Proper test obligations and Conduct Rules requirements. The full SM&CR will apply only to Solvency II insurers and insurers outside the scope of Solvency II who have assets of at least £25 million (known as “large non-directive firms”).
A more “streamlined” SM&CR regime will apply to Solvency II firms and large Non-Directive Firms ("NDFs") and a streamlined regime will apply to small NDF's, small runoff vehicles and Insurance Special Purpose Vehicles ("ISPVs"). As the SM&CR applies on a legal entity basis, if your firm is part of a group, you will also need to consider how each of the entities are caught by the regime.
2. Identify all Senior Managers
This will require a review of existing approvals to identify what changes need to be made. For example, some individuals who are currently categorised as holding a Senior Insurance Management Function (SIMF) may now fall under the Certification regime.
When you have identified them, each Senior Manager must have a Statement of Responsibilities (SoR) that clearly records their role and responsibilities. This document is the same in substance as a Scope of Responsibilities document, which some insurers were required to submit under the revised APR and PRA’s SIMR.
When carrying out this exercise you should ensure all of the prescribed responsibilities applicable to your firm have been allocated to the relevant Senior Manager, and that these responsibilities are clearly included in their SoR. Senior Managers must understand the new duty of responsibility and be trained on both tiers of the conduct rules in advance of the implementation. If your firm is subject to the full regime, you must produce and submit an entity-wide Management Responsibilities Map.
NB Insurers have until December 3rd 2018 to submit Form K to transition and convert their existing Controlled Function Holders and Senior Insurance Managers into Senior Managers. They then have until December 10th 2018 to prepare and submit an agreed Statement of Responsibilities for every Senior Manager listed in the Form K.
3. Identify which Certification Functions apply to your firm
Once you have identified which certification functions will apply to your firm, you will be able to identify which individuals will be carrying out those functions and require certification on an annual basis. You should also consider whether any changes are required to your firm’s Human Resources processes to incorporate the requirement for an annual fitness and propriety check for certified staff. All certified staff should receive training so that they properly understand their Conduct Rule obligations in advance of 10 December.
NB Firms have until December 9th 2019, to certify every individual member of their Certification Staff population.
4. Identify which staff the Individual Conduct Rules apply to
The individual conduct rules are basic standards of behaviour that apply to all individuals performing financial services activities in firms. These rules will apply to all staff except for ancillary staff, such as cleaners, receptionists, catering staff and security staff. Firms have until December 9th 2019 to train those members of staff that aren’t ancillary staff, Senior Managers or certification staff on these Conduct Rules.
5. Review recruitment processes to implement new requirements
HR processes will require modification to implement the new Regulatory Reference and Criminal Record Check Requirements. The regulatory reference requirements will apply when appointing an individual to a Senior Manager or a Certified role and will also apply to all NEDs who aren’t Senior Managers. The criminal records checks will apply to Senior Managers and NEDs (where a fitness requirement applies) as part of checking that they are fit and proper.
With the extension of the Senior Managers and Certification Regime (SM&CR) to dual regulated insurers edging closer, it’s important that you start preparing your firm. Identifying the key areas that need to be addressed is a crucial first step.