The British Insurance Brokers’ Association (“BIBA”) has called on the Financial Conduct Authority (“FCA”) to determine when the Senior Managers and Certification Regime (“SMCR”) will be extended to insurance brokers.
The SMCR aims to protect consumers and to strengthen market integrity in the financial services sector by increasing individual accountability for conduct and competence within financial services firms, and by requiring firms to make it clear where responsibilities lie within the organisation.
The regime is already in place in the banking sector and is now being extended to the insurance industry. It will apply to all insurance and reinsurance firms regulated by the FCA and the PRA, including insurers and reinsurers; insurance special purpose vehicles; the Society of Lloyd’s; managing agents; and UK branches of third-country firms and European Economic Area (EEA) firms. The SMCR comes into force for insurers on 10 December this year.
In July 2017, the FCA published Consultation Paper CP17/26 “Individual Accountability: Extending the Senior Managers & Certification Regime to Insurers”1, in which it set out proposals for the transition from the current Approved Person regime to the SMCR. The consultation closed in February this year and a Policy Statement is expected in the summer.
In the Consultation Paper, the FCA proposed extending the scheme to insurance brokers and it is currently anticipated that the new rules will apply to brokers towards the second half of 2019. However, BIBA has called on the FCA to determine when this will take place in order for brokers to have sufficient time to prepare their submissions on a timely basis.
The FCA has proposed that individuals at “core and limited scope” (those firms whose business is limited to certain types, for example smaller insurance intermediaries) will automatically move to the new regime. This would include a significant number of BIBA members. BIBA has welcomed this proposal as it this will simplify matters for many firms.
However, for those firms which fall within the definition of “enhanced firms” (such as the larger brokerage firms which have current total intermediary regulated business revenue of £35 million or more per annum), conversion will be far more onerous. They will be required to submit conversion notifications, statements of responsibility for each approved person, and a responsibilities map before moving over to the new regime. The FCA has stated that it seeks to effect a smooth transition and will reduce paperwork where possible. However, BIBA is urging brokers to begin the process by identifying who is currently an approved person, and assessing who will fall into the category of a Senior Manager and who will be required to be a Certified Person under the SMCR. BIBA anticipates that for the smaller brokerage firms it is unlikely that their employees will fall within the Certified Persons Regime due to size. David Sparkes, the Head of Compliance and Training at BIBA has explained that “Certified people are people who have the ability to cause significant harm to the business and so in the FCA’s eyes this will be people who are divisional directors of a large organisation that could operate above the firm’s systems and controls.”
The effect of the changes for the broking community under the new regime is not yet clear, but BIBA agrees that the changes seem sensible, in particular for smaller firms and is “keeping an open mind”.