On 25 September 2015, the Lloyd’s Market Association (LMA) published an updated version of its guidance for managing agents on the Senior Insurance Managers Regime (SIMR). The purpose of the guidance is to provide a summary of the possible implications of SIMR on managing agencies’ governance structures and required regulatory approvals.

SIMR is designed to cover those individuals who either effectively run the business or who have responsibility for important or critical areas of the business. SIMR applies to individuals holding a Senior Insurance Management Function, those deemed to be Key Function Holders, and those working within key functions. In respect of individuals holding a Senior Insurance Management Function, a regulatory pre-approval process will operate and the firm will have to provide the PRA with relevant information regarding the individual, including their skills and expertise, roles and responsibilities, and fitness and propriety. The PRA has identified a list of ‘prescribed responsibilities’ which all firms are required to allocate to one or more individuals who have been approved for a controlled function. Such responsibilities include ensuring that the firm has complied with its obligations to satisfy itself that every person who performs a key function is a fit and proper person, leading the development of the firm’s culture and standards in relation to the carrying on of its business and the behaviours of its staff, and production and integrity of the firm’s financial information and its regulatory reporting.

Key functions must, as a minimum, include the risk management function, the actuarial function, the internal audit function and the compliance function, although key functions are not restricted to these four categories. There will be no regulatory pre-approval requirement for Key Function Holders, although the PRA will require notification of anyone performing such a role and will expect the firm to provide relevant information. Key Function Holders are expected to be fit and proper, and firms should review their internal processes and give consideration as to how they might evidence to the regulator that they had taken “reasonable steps” in the performance of such roles.

With regard to individuals working within key functions, there will be no regulatory pre-approval requirements or notification requirements (other than for Key Function Holders). However, where Key Function Holders delegate significant responsibility to individuals, it is expected that such individuals will be fit and proper to carry out the role and will adhere to certain conduct standards.

It will be the firm’s obligation to demonstrate the fitness and propriety of all individuals who fall within the scope of the new regime. At the outset, consideration must be given to factors such as an individual’s personal characteristics, their level of competence, knowledge and experience, their qualifications and their training. Consideration must also be given to business conduct and compliance with conduct standards on an ongoing basis. It will be the responsibility of the individual managing agents to decide how fitness and propriety is assessed. The PRA has, however, issued conduct requirements which include acting with integrity, acting with due skill, care and diligence, being open and cooperative with the regulators, taking reasonable steps to ensure that the business of the firm for which you are responsible, and taking 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.

Under the new regime, it will be mandatory for a firm to compile and maintain a ‘Governance Map’, which must record the positions of those that effectively run the firm, the key functions within the firm, and the names of the individuals in each of those positions or with responsibility for a key function. The ‘Governance Map’ should also record the allocation of significant management responsibilities and reporting lines for each of these senior persons within the firm, and define the matters reserved for the Board.

In preparation for the new regime, the LMA suggests that managing agents should consider taking certain steps:

  • Review governance arrangements.
  • Assign Senior Insurance Management Functions.
  • Assign prescribed responsibilities to such individuals.
  • Identify current approved persons who can be grandfathered, such as individuals who are currently approved under the pre-SIMR regime and who can move to a controlled function under the new regime without applying for fresh approval.
  • Review relevant job descriptions.
  • Create a ‘Governance Map’.
  • Review governance processes.
  • Raise awareness of the reasonable expectations of regulators and the importance of consistent and accurate record keeping.