On 29 January 2018, HM Treasury announced that the Senior Managers & Certification Regime (the “SM&CR”) will apply to insurers from 10 December 2018. This means that insurers have less than a year to ensure compliance with the new requirements.

The SM&CR builds on the existing accountability requirements applying to insurers, namely the Solvency II governance requirements, the Senior Insurance Managers Regime and the Approved Persons Regime. Firms will therefore need to ensure their existing compliance arrangements are updated to reflect the changes under SM&CR before the end of 2018.

Why is the regime being extended to insurers?

The SM&CR was first introduced in March 2016 for banks and PRA regulated investment firms, in order to impose on them a stronger accountability regime. In May 2016, Parliament gave the FCA the obligation to extend the SM&CR to all regulated firms. The extension of the regime to insurers is the first step in this process. HM Treasury is yet to announce when the regime will commence for other firms regulated solely by the FCA.

The PRA has stated that a key objective of the SM&CR is to ensure that insurers’ governance systems are effective and provide for a clear allocation of responsibilities within firms. In addition, the PRA wishes to ensure the individual accountability of senior managers and directors for the following:

  • their own conduct in relation to their responsibilities within the firm;
  • overseeing the business conduct of the key individuals reporting to them (including regarding business risks taken or managed by these key individuals); and
  • the ongoing safety and soundness of the firm and the adequate protection of the firm’s policyholders.

What are the implications for insurers?

The SM&CR impacts the current regulatory requirements on insurers in the following ways:

  • the Senior Managers Regime will apply to all insurers meaning that regulatory approval will be focused on fewer senior people in the firm;
  • the Certification Regime will apply to all insurers, meaning that firms must now assess the fitness and propriety of certain individuals who could harm the firm, its customers or the market; and
  • the Conduct Rules will be extended to all of the firm’s staff (except ancillary staff).

Consultations on transition to the new regime

Both the FCA and PRA are currently consulting on how the regulators will move firms to the new regime (see here for the FCA’s consultation paper and here for the PRA’s). The consultations will close on 21 February.

Both the FCA and PRA consulted on the extension of the regime to insurers in 2017 (see here for the FCA’s consultation paper and here for the PRA’s). The subsequent policy statements are expected in summer 2018.