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UK: Senior Insurance Managers' Regime

Important changes are proposed to the UK’s rules for senior managers in the insurance sector.

Fri 23 Jan 2015

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have published separate consultations on the PRA’s new Senior Insurance Managers Regime (‘SIMR’) and the FCA’s Changes to the Approved Persons Regime. The new rules are intended to bring the UK in line with the EU’s Solvency II Directive (and also reflect to some extent the UK’s new senior manager regime for banks).


The PRA’s and FCA’s new rules will apply to all insurance and reinsurance firms within the scope of Solvency II, including the Society of Lloyd’s. They will also apply to Lloyd’s managing agents. 

Positions affected by the proposals

  1. Senior insurance managers subject to PRA pre-approval
    The PRA intends a smaller range of positions to be subject to regulatory pre-approval than at present. The list of 'Controlled Functions' that will require pre-approval is set out in the PRA’s consultation document. It includes Chief Executive Officer, Chief Finance Officer, Chief Risk Officer, Head of Internal Audit, Chief Underwriting Officer and Underwriting Risk Oversight (for the Society of Lloyd’s only).
    The PRA views these as critical roles within an insurer, and will hold them responsible for ensuring the ongoing safety and soundness of their firm and the appropriate protection of policyholders.
  2. Senior insurance managers subject to FCA pre-approval
    The FCA will require pre-approval of all individuals taking up executive and certain other functions within insurers whom the PRA has not otherwise approved. This will include those responsible for compliance, money laundering reporting officers and those with customer functions. These positions are “FCA SIF holders” and are subject only to FCA approval processes.
  3. Key function holders
    A "key function" will be defined in the PRA Rulebook. The definition will include risk management, compliance, internal audit and actuarial functions, as well as the function of effectively running the firm and any other function of specific importance to the sound and prudent management of the firm. A person responsible for discharging a key function will be a "key function holder".
    The PRA will require an insurer to identify all the key functions and to ensure that all persons performing them (a wider category than “key function holders”) are at all times fit and proper. An insurer must notify the PRA of any changes to the identity of key function holders and provide information needed to assess whether they are fit and proper.
    Senior insurance managers in the two categories outlined above will probably also be key function holders. If a key function holder requires FCA approval, it is not necessary to report changes to the PRA as well. Where key function holders do not require either PRA or FCA approval, the PRA proposes to review insurers’ assessments of whether they are fit and proper after their appointment and will take appropriate action if it considers that they do not meet the requirements.
  4. Non-executive directors
    These proposals do not apply to non-executive directors, except to the extent necessary to implement Solvency II. Non-executive directors will be the subject of a further consultation later this year, once the PRA and FSA have reached a view on their approach.

Governance Maps

The PRA proposes a new rule requiring insurers to compile and maintain a governance map which records the positions of those individuals that effectively run the firm and the names of the individuals holding these positions or with responsibility for a key function. The map will be used by the PRA to monitor and supervise firms’ governance arrangements. In enforcement cases against individuals, the Governance Map will be evidence of individual responsibility for the area where the breach occurred.

Conduct Standards for individuals

The PRA is revising its conduct standards, aligning them with conduct standards for banks. There will be eight conduct standards. Any person performing a key function must observe the first three, whereas a key function holder must observe all eight.   

Fit and Proper

Solvency II requires individuals performing key functions to be fit and proper at all times. As well as the Directive’s provisions, which will be transposed into UK law, there is a section on fit and proper requirements in Solvency II’s Delegated Acts, which has direct effect. 

The PRA is proposing to set out a list of factors that firms will need to consider when assessing the fit and proper status of individuals. However, the PRA has stated this list will be non-exhaustive.

Those seeking pre-approval under the FCA’s regime must show that they are competent to perform their role and have high standards of personal integrity before they can take the position.

Impact on Lloyd’s

The SIMR does not go as far as the banking regime. In particular, the new criminal offences under the Financial Services (Banking Reform) Act 2013, and the presumption of responsibility under FSMA 2000 do not apply, and the scope of SIMR is narrower.

This being said, the measures demonstrate that the PRA and FCA are serious about ensuring that individuals have the right expertise to carry out their functions properly.

Next Steps

Both consultations close on 2 February 2015. Solvency II will be applied to insurers from January 1 2016 and the UK aims to transpose its provisions into UK law by 31 March 2015.

For further information please contact the GPA Team.