UK-based insurers have a few weeks until the 10 December 2018 deadline to comply with the new Senior Manager and Certified Persons Regime (SM&CR) which currently applies to banks and larger investment firms. Its extension to insurers, replacing the Senior Insurance Managers Regime (SIMR), reflects the view of the UK’s financial services regulators that the SM&CR has improved culture and compliance by clarifying individuals’ responsibilities and enabling them to be held to account to a greater extent than previously. The SIMR, which itself only dates from March 2016, could be described as representing a “half-way house” between the Approved Persons Regimes established in 2001 and the SMCR. The new regime will apply to all insurers and re-insurers although additional requirements will apply to Solvency II and large non-directive firms (i.e., those with assets over £25 million).
While Solvency II requires EU member states to establish that insurers and re-insurers have effective systems of governance to ensure the sound and prudent management of a business, SM&CR establishes additional provisions for senior leaders. Solvency II enables transparency in organizational structures with clear allocations and an appropriate segregation of responsibilities. SM&CR takes Solvency II a step further by requiring senior leaders who effectively run the business or have key functions such as actuarial, risk management, compliance, and internal audit to be assessed as fit and proper, and have their identity shared with relevant supervisory authorities. In this context, the UK is now strengthening its domestic regime through the application of SM&CR to the insurance sector as it moves away from the current model.
Both UK prudential and conduct regulators have set out detailed guidance on the transitional arrangements for those persons who will be senior managers under the new regime. Amongst steps required by firms in preparation, insurers should review their management structure/reporting lines, review and agree responsibilities with relevant managers and map these to show their allocation, review and amend contracts of employment together with HR policies and disciplinary procedures, make appropriate notifications to regulators as well as develop procedures around senior manager handovers.