The UK Senior Managers and Certification Regime (SMCR) is being extended to all financial services firms during 2018.
Insurance intermediaries are currently subject to the Approved Persons Regime (APR) and will need to begin transition to the new regime. It increases individual accountability for actions taken by officers and employees of regulated firms.
Three key elements
Senior Managers Regime individuals will require approval to perform Senior Management Functions and will have a Statement of Responsibilities setting out the areas for which they are responsible; the FCA expects that the number of Senior Managers under the SMCR will be less than under the APR.
Certification Regime applies to individuals who are not senior managers, but who have a role which means that they could expose the firm or its customers to significant harm.
Conduct Rules replace the existing Statements of Principle and Code of Practice for Approved Persons and will apply to all staff, other than those performing ancillary roles.
Most firms will have to apply a 'core regime'.
Some larger, more complex firms, including some insurance intermediaries, will be subject to an 'enhanced regime' , including:
Additional Senior Management Functions and Prescribed Responsibilities
Sole traders and insurance intermediaries whose principal business is not insurance intermediation and whose activity only relates to non-investment insurance contracts will be among the 'limited scope' firms subject to reduced requirements (in much the same way as is currently the case for the APR).
Late 2018 SMCR expected to apply
Barnaby Hinnigan Partner T: 020 7466 2816 firstname.lastname@example.org
Hywel Jenkins Partner T: 020 7466 2510 email@example.com
SOME PRACTICAL STEPS
The FCA's proposals are set out in its consultation paper CP17/25.
Firms will need to undertake a significant amount of preparation and forward-planning to be ready for the transition.
When compared to the current regime, fewer individuals are likely to require regulatory approval (as Senior Managers). However, more individuals are likely to fall into the Certification Regime and many employees will be subject to Conduct Rules for the first time.
Early steps that can be taken include :
Map the current business structure, including the legal entity structure
Identify expertise needed to facilitate delivery, including legal, compliance, risk, audit, training and development, and human resources
Brief the board, board committees, and executive management
Identify current population of Approved Persons / gather existing senior management role descriptions
Plan approach to internal communications during implementation phase
Plan training programmes for Senior Manager and Certified cohorts and on Conduct Rules compliance for all relevant staff
Lessons can be drawn from the implementation of the SMCR for banks and the SIMR for insurers. We have considerable experience of both, please contact one of the team if you would like to discuss.
Our experience from working with our clients on both suggests that projects to implement the SMCR should begin now rather than waiting for the outcome of the FCA's consultation.
Our more detailed briefing on the extension of the SMCR to insurance intermediaries can be found here.
Alison Matthews Consultant T: 020 7466 2765 firstname.lastname@example.org
Matthew Brewer Senior Associate T: 020 7466 2382 email@example.com
EXTENDING THE SMCR TO INSURANCE INTERMEDIARIES FCA PROPOSALS "AT A GLANCE"
1. SENIOR MANAGERS CORE REGIME (see our briefing for details of the enhanced regime)
SENIOR MANAGEMENT FUNCTIONS
Governing Functions SMF9 Chair SMF1 Chief Executive SMF3 Executive Director SMF27 Partner Required Functions SMF16 Compliance Oversight SMF17 Money Laundering Reporting Officer
Assign Prescribed Responsibilities to Senior Managers
Performance by the firm of its obligations under the Senior Managers Regime, including implementation and oversight
Performance by the firm of its obligations under the Certification Regime
Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules
Responsibility for the firm's policies and procedures for countering the risk that the firm might be used to further financial crime
Responsibility for the firm's compliance with CASS (if applicable)
Responsibility for ensuring the governing body is informed of its legal and regulatory obligations
2. CERTIFICATION REGIME
FCA pre-approval not required for employees caught by certification regime
But firm must carry out assessment of fitness and propriety on arrival
Annual certification required
3. CONDUCT RULES
Senior NED Managers
1 You must act with integrity
2 You must act with due care, skill and diligence
3 You must be open and cooperative with the FCA, PRA and other regulators
4 You must pay due regard to the interests of customers and treat them fairly
5 You must observe proper standards of market conduct SC1 You must take reasonable steps to ensure that the business of the firm for which you are responsible is
controlled effectively SC2 You must take reasonable steps to ensure that the business of the firm for which you are responsible
complies with the relevant requirements and standards of the regulatory system SC3 You must take reasonable steps to ensure that the delegation of your responsibilities is to an appropriate
person and that you oversee the discharge of the delegated responsibility effectively SC4 You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
Certified Functions/ other employees
Training Firms must
implement training for staff Training will need to be tailored to different roles
Notification Firms must notify
FCA when disciplinary action is take against an individual for breach of the Conduct Rules