Regulation: ABI Update on Latest SM&CR Rules for Insurers

Latest news update from the Association of British Insurers for you;

There is a great deal of anticipation ahead of the impending rollout of the Senior Managers & Certification Regime (SM&CR) for insurers. The fact that many of the requirements within SM&CR are akin to those set out under the Senior Insurance Managers Regime (SIMR), which insurers have been subject to since March 2016, should not disguise how fundamental a change this rollout may represent within firms.

Specifically, the Certification Regime is poised to create significant additional workload by introducing the need to certify – in all likelihood – a much larger population of staff than those that were caught by SIMR.

This will include all key function holders and material risk takers, in addition to anyone who holds a ‘significant management’ role, and anyone who manages certified individuals.

Firms will now need to ensure that robust processes are in place to assess the fitness and propriety of all of these individuals each year, on a role-by-role basis.

SM&CR will capture all Solvency II Directive and Non-Directive firms (NDFs) and intermediaries, with the onus being on organisations ensuring their business is set up in a way that enables a culture of good governance and individual accountability. In its proposal, the regulator demonstrates a flexible approach that is proportionate, and considers the different risks of a firm’s business model by introducing a more ‘streamlined’ set of requirements for small NDFs and ISPVs (Insurance Special Purpose Vehicles).

The three main elements of SM&CR are:

  • The Senior Managers Regime: Thiscreates a set of specified ‘Senior Management Functions’, which will effectively replace the current Senior Insurance Manager Functions (SIMF).
  • The Certification Regime: This requires firms to identify employees who represent a risk to consumers, the firm, or the markets it operates in, and assess, on an ongoing basis, whether they are fit and proper to perform their roles effectively. The extension of the Certification Regime to insurers for the first time will likely be the single area of most significant change for insurers who are transitioning away from SIMR.
  • The Conduct Rules: This requires individuals to act with integrity, due care, skill and diligence, to be open and cooperative with regulators and to treat customers fairly. Where breaches of these rules occur, firms will be required to report the consequent disciplinary action taken to the FCA.
  • Every senior manager needs to provide an accurate statement of their responsibilities to the regulator.
  • All firms are required to allocate ‘prescribed responsibilities’ to senior managers.
  • Individuals based overseas will be captured by the regime if they have executive responsibilities, perform significant harm functions, or are material risk takers – concerning the UK business.
  • Should the regulator identify a problem or issue within a firm, the senior manager responsible for that area will have to demonstrate that they took ‘reasonable steps’ to prevent the problem from occurring.
  • There must be a distinct audit trail of each individual’s annual certification, and a suitable way to assess their fitness and propriety, according to their role.
  • Firms should prepare for the potential effects of SM&CR on compensation, staff retention and ability to compete in the market, caused by the fact senior positions within the industry may be perceived as less desirable given the increased risk now associated with them.

Considerations for firms

Huntswood’s recently published white paper – Implementing the Senior Managers and Certification Regime: Practical Guidance For The Industry – outlines the steps required for a firm to implement the regime effectively.

Huntswood are also presenting at the ABI’s SM&CR event on 10th May 2018 – see here for further information and to reserve your place.

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