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Insurers and the extension of the Senior Managers and Certification Regime

‚ÄčA dry subject, but are you aware of the implications of the  new changes proposed? How will the ‘duty of responsibility’, extension of the Certification Regime, Conduct Rules for all staff, replacement of the Approved Persons regime, and new prescribed responsibilities affect you, your Board, and your firm?

As long ago as October 2015 the Treasury announced that the SM&CR would be extended to all regulated firms.  For those operating in the world of insurance you could be forgiven for taking little notice, after all insurers already have their very own SM&CR equivalent in the form of the Senior Insurance Managers Regime (SIMR), right?  Wrong.  Whilst there are many similarities between SIMR and the SM&CR regime that currently applies to banks, there are important differences that will be removed following recent consultations from both the PRA (CP 14/17) and FCA (CP 17/26).

In summary, the key changes proposed are:

1 - The new “duty or responsibility” whereby Senior Managers will need to be able to demonstrate that they took reasonable steps in the event of a regulatory breach in an area they are (or were) responsible for at the time.  This poses all sorts of practical challenges and, dare I say, unintended consequences.  For example, how does a diligent and careful Senior Manager go about creating and maintaining a coherent audit trail on an ongoing basis? I have seen some rather complex and administratively burdensome spreadsheets and files maintained by Senior Managers in banks in response to this requirement.  However, I can’t help wondering if this is really what the regulators intended, or were reams of paper always going to be the by-product of public and political demands to put a ‘head on a stick’ when things go wrong.

2 - Extending the Certification Regime to all Key Function Holders (who are not already Senior Managers), material risk takers, and significant management roles that can seriously impact how a firm conducts its business.  This means an increase in the number of staff who fall under the regulatory reference requirements and will need to have their fitness and propriety assessed on an annual basis.

3 - The Conduct Rules will apply to all staff other than those performing ancillary roles.   This means a significant increase in the number of staff who are directly accountable to the regulators for compliance with the individual Conduct Rules, and therefore need to be made aware of their responsibilities. 

4 - The replacement of the FCA’s Approved Persons Regime with the introduction of FCA-designated Senior Manager Functions (SMFs).  In general this means insurers will have fewer FCA-designated SMFs than the current Controlled Functions; current approved persons falling outside the new categories of SMF are likely to fall into the Certification Regime instead.

5 - The creation of three new prescribed responsibilities (performance of obligations under the SMR, Certification Regime, and its Responsibilities Map) which are ‘shared’ between the PRA and FCA.  Plus, three new FCA owned prescribed responsibilities (obligations under FCA Code of Conduct, compliance with CASS, and prevention of financial crime).

The Treasury have yet to announce when the new rules, once finalised, will come into effect.  Late 2018 seems most likely, but our experience of working with clients suggests that it is wise to begin preparing now, especially given the significant impact of the changes on existing HR processes and employee contracts.   There will always be firms who choose to wait and see, but remember that these proposals are rather unusual in that much of the legislation has been enacted already.  This means that the regulators are unlikely to make any material changes to the current proposals simply because their hands are tied by existing legislation.

On a more positive note it looks like the opportunity will be taken to better align the differing terminology between the two regimes – is that a “Scope of Responsibility” or “Statement of Responsibility”?  Frankly they boil down to the same thing!


Lucy McClements joined BP&E Global as a Director in the summer of 2016 after nearly two decades as a regulator where she supervised firms from both a conduct and prudential perspective across all sectors of financial services from asset managers, banks, insurers, retail intermediaries, and securities firms.  Before leaving the Financial Conduct Authority Lucy spent five years as a Head of Department in the Authorisation Division overseeing thousands of applications for authorisation, variation of permission, cancellation, change in control, and approved person status.

As a qualified coach of the International Coaching Federation she combines her passion for leadership development with a deep insight of regulatory expectations to support Boards to achieve even greater effectiveness.

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