The SMCR already applies to the banking world and was extended to all dual-regulated insurance and reinsurance firms on 10 December 2018.
It replaces the Senior Insurance Managers Regime (SIMR) and the Revised Approved Persons Regime.
The SMCR will come into effect for all solo-regulated FCA firms on 9 December 2019. Any firms that are not compliant by that date could face enforcement action.
The extension of the SMCR beyond banking is intended to improve culture and governance in the insurance sector and looks to ensure that all staff understand who has ultimate and overall responsibility.
Ethics, fairness and culture
Paul Avis, marketing director at Canada Life Insurance Group, told International Adviser: “It is trying to do two jobs – the first is that it is encouraging culture of staff at all levels, taking personal responsibility for their actions but also ensure firms clearly demonstrate where the responsibility lies.
“This is an important point because it is about ownership of decision making and good customer outcomes, and having the right people in place to be able to ensure that happens. It is not a replacement of two regimes, it is about culture and putting the customer at the heart at everything that we do.
“It is about business ethics but beyond treating customers fairly, it is about the culture of the organisation. It goes beyond the financial promotion process. It is about when you do things on product development, do you start it with the customer and do you end it with the customer.”
There are three core components of the SMCR – the Senior Managers Regime, the Certification Regime and the Conduct Rules.
Firstly, the most senior people (senior managers) who perform key roles (senior management functions) will need PRA or FCA approval before starting their roles. Every senior manager needs to have a “statement of responsibilities” that clearly says what they are responsible and accountable for.
Solvency II firms and large non-directive firms also must provide “responsibilities maps”.
Secondly, the Certification Regime applies to employees who are not senior managers but whose role means it is possible for them to cause “significant harm to the firm or its customers”. These roles are called “certification functions”.
These people do not need to be approved by the FCA or PRA, but firms need to check and confirm that they are fit and proper to perform their role at least once a year.
Lastly, the Conduct Rules set minimum standards of individual behaviour in financial services. The rules aim to improve individual accountability and awareness of conduct issues across firms.
They apply to almost all employees who do financial services activities, or linked activities, in a firm. Some Conduct Rules apply to all employees, while others only apply to senior managers.
Steven Cameron, pensions director at Aegon, said: “The new regime applies to individuals who perform Certification Functions but who are not senior managers and for them, the extension of the SMCR is a significant new requirement.
“Senior managers can expect to see minimal impact compared with the existing SIMR which the new regime replaces.
“However, all other staff are required to be trained on the conduct rules over the course of the next year, setting basic standards of good personal conduct, shaping the culture, standards and policies of life firms as a whole and promoting positive behaviours that reduce harm.”
International law firm Taylor Wessing has launched a free online tool to help solo-regulated financial services firms affected by the extended SMCR.
The tool enables firms to determine what category they fall into for the purposes of SMCR – limited scope, core or enhanced – and the extent to which the regime applies to them.
The tool identifies actions that need to be taken ahead of the 9 December 2019 deadline.
Sean Nesbitt, partner and corporate governance expert at Taylor Wessing, said: “Clients affected by the SMCR extension can’t afford to wait until the final deadline before they assess what measures they need to put in place.
“Not complying with the new rules could have serious consequences for individuals and there’s a lot that needs to be reviewed to ensure a smooth transition to new working practices, procedures and policies.”