The Financial Conduct Authority (FCA) has published a policy statement setting out its near final rules on how it intends to extend the Senior Managers and Certification Regime (SM&CR) to insurers (Policy Statement). The FCA has also published a separate “SM&CR: Guide for insurers" which sets out the main features of the regime and provides an overview of how the SM&CR works and how the FCA will move firms and individuals to the new regime. The FCA is also extending the SM&CR to insurance intermediaries; the policy statement can be found here. We will be publishing a separate article on it in the next edition of our Insurance Bulletin.
What is the SM&CR?
The SM&CR is replacing the current Approved Persons Regime for insurers. The Policy Statement will be of interest to Solvency II firms (including managing agents and UK branches of non-UK firms), insurers outside the scope of Solvency II, and small run-off firms (i.e. insurers with less than £25m technical provisions that no longer have permission to write or acquire new business). The SM&CR will not apply to Appointed Representatives who will continue to be subject to the Approved Persons Regime.
SM&CR aims to create a system that encourages staff to take personal responsibility for their actions, improves conduct at all levels, and makes sure firms and staff clearly understand, and can demonstrate, who does what. The Senior Insurance Managers Regime (SIMR) already incorporates some of the substantive ideas and principles underpinning the SM&CR and HM Treasury has previously stated that SIMR would “pave the way" to SM&CR1. The SM&CR is due to commence for insurers on 10 December 2018 but will require substantial investment in preparation before then.
What are the key features of the SM&CR?
The SM&CR is made up of 3 key parts:
1. The Conduct Rules
This sets out the minimum standards of individual behaviour and will apply to almost all employees who perform financial services roles in a firm.
2. The Senior Managers Regime (SMR)
This new regime creates a new type of controlled function called a “senior management function". The people who will hold such functions will be called “Senior Managers" and will be required to be PRA or FCA approved.
3. The Certification Regime
The Certification Regime is one of the biggest changes for insurers from the Senior Insurance Managers Regime and Approved Persons Regime. It will apply to people who are not senior managers but whose roles mean it is possible for them to cause significant harm to the firm or of its customers. Employees performing such functions, known as certification functions, will not need to be approved by the FCA but firms will need to certify at least once a year that they are fit and proper to perform their role.
There are two key transitional arrangements to help firms move to the new regime:
- Firms will have to identify the staff performing certification functions ahead of 10 December but will have 12 months from the commencement date to complete the initial certification process.
- Senior Managers and employees performing certification functions will need to have been trained and abide by the Conduct Rules by 10 December 2018. Other staff will need to be trained within 12 months of the commencement date.