Out-Law News | 29 Oct 2019 | 1:01 pm | 2 min. read
Insurance brokers, like other firms that are solo-regulated by the UK's financial services regulator the Financial Conduct Authority (FCA), should make sure they are ready to comply with the UK’s SMCR within the next six weeks, an expert has warned.
Research produced by insurance provider Ecclesiastical has found that only 56% of brokers in its survey were aware of the Senior Managers and Certification Regime. The deadline for SMCR implementation for insurance brokers is 9 December 2019.
Financial services regulation expert Elizabeth Budd of Pinsent Masons, the law firm behind Out-Law, said: "With the SMCR's implementation date looming it is a concern that Ecclesiastical's findings indicate so many firms in the insurance broking industry are apparently not yet prepared."
Budd said that by the 9 December deadline brokers must have identified and registered staff who are senior managers with the FCA and produced and agreed statements of responsibility with these managers. Large brokers with revenue in excess of £35 million are considered ‘enhanced firms’ for the purposes of SMCR and will need to produce a responsibilities map showing how senior managers’ responsibilities are allocated.
Budd said that certification function staff within broking firms are to be identified by the implementation deadline, and brokers also need to train almost all their staff, except ancillary staff such as secretaries, on the SMCR's Conduct Rules.
“This is a significant task, not least as there can be very large numbers of staff to train on the Conduct Rules and the regulator, in reviewing banks already in the SMCR regime, has expressed concern about the standard of training firms have given on the Conduct Rules," said Budd.
“The intention is to clearly identify who is responsible for every different aspect of the broker’s business and for senior managers in particular to understand that they have a duty of responsibility to take the steps that a person in their position could reasonably be expected to take to avoid rule breaches occurring," she said. "It is a sea-change in approach by the FCA and those who are senior managers can expect close scrutiny from the FCA."
“Failure to comply risks enforcement action against firms and individuals,” Budd said. “The FCA has the power to impose penalties where an individual is performing a senior management function without regulatory approval.”
The SMCR replaced the Senior Insurance Managers Regime (SIMR) and revised Approved Persons Regime (APR) for insurance firms from 10 December 2018. The rules, which are designed to increase individual accountability within the financial sector, also already apply to banking firm staff.
Budd said for most large brokers, moving individuals from the current Approved Persons Regime to the SMCR should require little interaction with the FCA, if any. A senior manager must be given prescribed responsibilities, covering the aspects of the SMCR such as the performance by the broker of its obligations under the Senior Managers Regime, the Certification Regime and in respect of notifications and training on the Conduct Rules.
Brokers must produce a short statement of responsibility, describing what senior managers are individually responsible for. Firms are now also responsible for carrying out the certification of staff and showing they are “fit and proper”, something which was previously an FCA responsibility in respect of staff that the approved.
Those requiring certification at an insurance broker includes individuals with significant responsibility for a business unit, and individuals with oversight of the operational effectiveness of a firm’s systems and controls for client money and assets.
The ‘client dealing function’ is being expanded from current rules to apply to any person dealing in or arranging investments with clients, including retail and professional clients and eligible counterparties, although it excludes those who have no scope to reach a judgement on what should be done in a given situation.
Brokers also need to certify anyone who supervises or manages a certified function, but who is not a senior manager.
Budd said the lighter limited scope regime would apply to claims management companies that have no other function.
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