Out-Law Analysis | 12 Nov 2015 | 2:37 pm | 3 min. read
The Senior Insurance Managers Regime (SIMR) is designed to hold individuals increasingly responsible for failings by their firms. It is based on similar rules as the Senior Managers Regime (SMR) which is applicable to banks, building societies and designated investment firms, but "tailored to the different business models and associated risks of insurers", according to the Prudential Regulation Authority (PRA).
The SIMR will apply to:
The new rules will replace the PRA's current approved persons' regime (APER) for most senior insurance staff, and make it easier for the regulator to hold these individuals personally responsible for regulatory breaches. APER will continue to apply to other insurance staff.
The PRA intends to introduce a modified version of the new regime for smaller insurers, who will not be subject to new solvency and risk management standards when the EU-wise Solvency II regime takes effect next year.
The Treasury has recently announced the introduction of a statutory duty of responsibility on senior managers to take reasonable steps to prevent a regulatory breach in their area of responsibility, which replaces a proposed presumption of responsibility for senior managers in banks. Regulators will be able to take enforcement action if they can show that the individual failed to take such steps.
In practice, this does not hugely differ from the current conduct rules and the regulators will most likely continue to expect senior managers to face very tough questioning around the steps they took to prevent any failing on their watch. The government has stated that its reason for taking this approach is to ensure a fairer, more consistent and rigorous regime for all financial services firms.
Dates for your diary
1 January 2016: firms must have governance maps in place and scope of responsibilities applications made.
8 February 2016: submit grandfathering notifications to the PRA and Financial Conduct Authority (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'.
7 September 2016: submit scope of responsibilities forms for grandfathered individuals.
7 September 2016: whistleblowing rules take full effect.
End of October 2016: first annual submission notifying breaches of the conduct rules required.
7 March 2017: application of conduct rules to staff who are not within the SMIR.
Preparing for the new regime
First and foremost, firms should ascertain who is captured by the SIMR and ensure that there is a clear allocation of responsibilities. Once the senior managers have been identified, firms will need to record the allocation of responsibilities to individual managers via the 'statement of responsibilities' and 'responsibilities map'.
The responsibilities map should set out the firm's management and governance arrangements – very specifically, who is responsible for what? It is designed to satisfy the regulators that firms have fully allocated prescribed responsibilities and key functions to named individuals.
The map must be accompanied by a statement of responsibilities for each senior manager. The significance of the statement of responsibilities should not be underestimated: it is designed to inform the regulators whose door to knock down in the event of a regulatory breach.
New conduct rules will apply to all PRA and FCA approved persons from 7 March 2016. These new rules also require careful consideration, as they impose a positive obligation on firms to take all reasonable steps to ensure that staff understand how the new conduct rules will apply to them. Further, they require that any delegation of responsibilities is to an appropriate person and is properly overseen.
New whistleblowing rules
Firms will also need to reconsider their internal whistleblowing policies and training, in order to properly implement and embed the new positive obligation to whistleblow to the regulators introduced by the new regime.
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, though 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:
Michael Ruck and Elena Elia are financial regulation experts at Pinsent Masons, the law firm behind Out-Law.com.