Senior Insurance Managers Regime - Are you prepared?

The SIMR applies to Lloyd’s and managing agents, so firms need to prepare for the forthcoming implementation dates, from 1 January 2016 through to 7 September 2016.

The new regime seeks to ensure that the senior persons who are effectively running insurers, or who are responsible for other key functions, will behave with integrity, honesty and skill. In our January 2015 article we outlined the key elements of the proposals, including:

• Which senior insurance managers (SIM) would be subject to PRA and FCA approval
• The key function holders required to be “fit and proper”
• Treatment of non-executive directors
• Requirements to maintain a ‘governance map’
• The revision of conduct standards for key function holders

Since then, we have seen further consultations, culminating in the final rules and guidance, published in the summer:

There are some minor amendments to the rules from the original proposals but no major changes of note. The final rules comprise:

Key Functions:

A firm must identify all persons carrying on “Key Functions” and every key function that amounts to effectively running the firm.

The PRA supervisory statement provides that a firm’s system of governance must cover at least the following key functions:

• Risk management function
• Compliance function
• Internal audit function
• Actuarial function

In addition, the PRA says that a firm may have other key functions that are of specific importance to the sound and prudent management of the firm and must carry out an assessment to identify them. It does not consider “Key Function” to be a closed category.

Key Function holders are those persons responsible for a Key Function and treated separately to those persons who perform key functions. Please click on the diagram below which shows how these particular positions fit into the new regime.

Fit and Proper requirements:

A firm must:

• Ensure that all persons who perform Key Functions are at all times fit and proper.
• Notify the PRA of new and existing Key Function Holders, providing all the information needed to assess whether the person is fit and proper.
• Submit an approval application, for a new Senior Insurance Manager Function to the PRA and for a new FCA Control Function to the FCA, before the activities requiring approval commence. This enables the PRA and the FCA to assess the appointee’s fit and proper status.

Allocation of responsibilities

A firm must allocate Prescribed Responsibilities to an approved person. It must provide the PRA with a summary of the significant responsibilities allocated to each Key Function Holder.

The prescribed responsibilities include:

• the firm’s implementation and operation of the SIMR;
• the culture and standards within the firm; and
• a number of areas in which the PRA has specific interest as a prudential regulator

Governance Map

A firm must draw up and maintain a Governance Map.

The governance map should be updated at least quarterly and in the event of a significant change to the governance structure or to the responsibilities or the reporting line of a Key Function Holder.

The PRA rules set out full details of what the governance map should contain.

Conduct Standards and Rules

A firm must require:

• A Key Function Holder to observe all the PRA Conduct Standards.
• A person performing a Key Function to observe the PRA Individual Conduct Standards.
• A Notified Non-Executive Directive to observe the PRA Individual Conduct Standards and two of the SIM Conduct Standards.

All the Standards apply directly to approved persons.

Approval and notification

Firms must:

• Notify the PRA of new Key Function Holders.
• Seek PRA approval of new Senior Insurance Manager Functions (SIMFs)
• Seek FCA approval of new FCA Controlled Functions.

Grandfathering

Grandfathering avoids the need to make completely new applications for supervisory approval of SIMFs and FCA Controlled Functions (CFs) where the individual concerned is performing the same or a corresponding function under the existing regime and will not be taking up a new SIMF.

Timeline

The new regime will be implemented in stages. The key deadlines for implementation are:

• 1 January 2016 - Provisions implementing Solvency II
• 8 February 2016 - Deadline for submission of grandfathering applications
• 7 March 2016 - SIMR comes into force and Prescribed Responsibilities to be allocated
• 7 September 2016 - Deadline for submission of Scope of Responsibilities forms to PRA for grandfathering applications.

Impact

Whilst the intention is to bring the senior managers regime for insurers in line with the SMR for banks, it has been tailored to take into account the specific differences within the insurance industry. Accordingly, some of the obligations and sanctions for senior managers in banks and building societies do not apply to senior managers in insurance undertakings.

Overall, the new SIMR rules comprise a far reaching revision of existing requirements with some new additions of prescribed responsibilities, conduct standards and rules and governance maps.

For more information, please refer to the PRA document ‘Senior Insurance Managers Regime – what firms need to know and do’ or contact the GPA team.