The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have recently published a number of papers regarding the introduction of the Senior Insurance Managers Regime (SIMR). This topical article aims to set out in an easy to follow format the various deadlines which firms need to meet and the work they need to do. It also points out any differences in requirements for small non-Directive firms.
The SIMR applies to all Solvency II firms and to firms outside the scope of Solvency II but with assets in excess of £25m. A lighter touch version of the regime applies to other firms outside the scope of Solvency II (small NDF’s).
The regime is designed to hold individuals increasingly to account for failings by their firms. It is based on similar rules for the Senior Managers Regime (applying to banks, building societies and designated investment firms), but the regulator has stated that it will be “tailored to the different business models and associated risks of insurers”. Some of the obligations and sanctions for senior management in banks and building societies do not apply to senior managers in insurance undertakings and there will not be an equivalent of the Certification Regime proposed in the banking sector. However, there will still be a responsibility to ensure that any delegated responsibilities are clearly assigned and that those individuals holding delegated responsibility fulfil their duties with diligence and due care.
General deadlines to meet
1 January 2016
Firms (except small NDF’s) must have governance maps in place. They should also prepare Scope of Responsibility documents which will need to be submitted to the relevant regulator in September 2016. (Please note that Scope of Responsibilities documents are not needed when Form K is submitted to grandfather existing people.)
8 February 2016
All firms must submit grandfathering notifications to the PRA and FCA in relation to existing significant influence function (SIF) holders.
7 March 2016
New conduct rules come into force for PRA and FCA approved persons, including the requirement to assign responsibilities to a “whistleblowers’ champion”. SIMR comes into effect and prescribed responsibilities to be allocated.
7 September 2016
Submit scope of responsibilities forms for grandfathered individuals.
7 September 2016
Whistleblowing rules take full effect.
Firms will need to reconsider their internal whistleblowing policies and training. They will need to implement and embed an awareness that all staff have the right to whistleblow directly to the regulator should they wish to do so. Please note this is not an obligation for staff to always whistleblow to the regulator, and indeed it would be preferable that they whistleblow to the senior manager the firm will have appointed as its “whistleblowing champion”.
The regulators have recently published a package of rules designed to build on and formalise the good practice already widespread in the financial services industry. The rules aim to encourage a culture where individuals feel able to raise concerns and challenge any poor practice without fear of reprisal. These rules apply to insurers subject to the Solvency II Directive, although all other firms are also well advised to take heed of this guidance as the regulators will expect similar high standards throughout.
The new rules on whistleblowing require a firm to:
- appoint a senior manager as their whistleblowers’ champion;
- put in place internal whistleblowing arrangements able to handle all types of disclosure from all types of person;
- put text in settlement agreements explaining that workers have a legal right to blow the whistle;
- tell UK-based employees about the FCA and PRA whistleblowing services;
- present a report on whistleblowing to the board at least annually;
- inform the FCA if it losses an employment tribunal with a whistleblower; and
- require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.
The relevant Policy Statement can be found here: https://www.fca.org.uk/static/fca/article-type/policy%20statement/ps-15-24.pdf
The new whistleblowing rules affect:
- UK deposit-takers with assets of £250m or greater, including:
- building societies
- credit unions
- PRA-designated investment firms, and
- insurance and reinsurance firms within the scope of Solvency II and to the Society of Lloyd’s and managing agents.
These are collectively referred to as ‘relevant firms’ throughout the document. Note that for all other regulated firms, the text of the rules will act as non-binding guidance.
End of October 2016
First annual submission notifying breaches of the conduct rules required. This requirement does not apply to insurance firms. It is a requirement which applies under the Senior Manager and Certification Regime which applies to organisations such as banks.
7 March 2017
Application of conduct rules to staff who are not within the SIMR.
SIMR for “small NDFs”
There is a streamlined SIMR for “small NDFs”, with only one Senior Insurer Management Function (SIMF 25).
The PRA has stated that it expects that the CEO (APR CF3) and the Chairman of the governing body will be SIMF25, and where the firm currently has an APR CF12 or APR CF12A, the firm will need to have an SIMF20 (Small Insurer Chief Actuary function, currently an APR CF12); and/or an SIMF21 (Small Insurer With-Profits Actuary function) currently an APR CF12A.
Allocation of a customised, shorter set of prescribed responsibilities (5*, 6*, 7* and 8* in Table A on page 6 of PS3/15 – see URL below) to Senior Managers, as follows:
- responsibility for the implementation and management of the firm’s risk management policies and procedures;
- responsibility for managing the systems and controls of the firm;
- responsibility for managing the firm’s financial resources; and
- responsibility for ensuring the governing body is informed of its legal and regulatory obligations.
These are in addition to the core requirements for all firms, as follows:
- responsibility for the firm’s performance of its obligations under the senior management regime;
- responsibility for the firm’s performance of its obligations under the certification rules;
- responsibility for compliance with the firm’s obligations in relation to its management responsibilities; and
- responsibility for the allocation of all prescribed responsibilities.
There are four further prescribed responsibilities for specific types of firm – see Bank of England Policy Statement PS3/15 – Strengthening individual accountability in banking and insurance (Table A on page 6): http://www.bankofengland.co.uk/pra/documents/publications/ps/2015/ps315.pdf
Scope of Responsibilities statements
Small NDFs have longer to prepare Scope of Responsibilities for all SIFs – this has been pushed back to 7 March 2017.
This is a requirement for all firms other than small NDF’s; however, we recommend that all firms, whatever their size, compile a Governance Map, but taking into account proportionality for small firms. This map should show which are the key functions at the firm, and the relevant individuals responsible for these functions, along with their lines of accountability and responsibility both within that firm and any wider group. The PRA expects Governance Maps, including information on the scope of individual responsibilities, to become an important tool for supervising insurers, including in particular in its assessment of the overall corporate governance of insurers.
All NDFs should submit grandfathering notification forms for current approved persons by 8 February 2016.
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