Page 53 - Demo

VI. Principal Regulatory Developments Affecting Insurance Companies
52
In practice, the new statutory duty of responsibility is not a significant departure from current rules, and the PRA and FCA are likely to expect senior insurance staff to be subjected to thorough questioning about steps they took to avoid any issues of regulatory misconduct. In the same publication in which HM Treasury announced the rules regarding the statutory duty of responsibility, HM Treasury confirmed that it intends to extend the SMCR to other regulated entities, including insurers, in 2018.
2. The Senior Insurance Managers Regime
From March 7, 2016 and until the SMCR is extended to insurers, insurers will be subject to a new bespoke regime, the Senior Insurance Managers Regime (“SIMR”), which will replace the PRA’s current Approved Persons’ Regime (“APER”) in respect of senior insurance staff. The SIMR aims to (i) ensure that insurance entities have clear and effective governance structures and (ii) clarify and enhance accountability of senior insurance managers. The new regime serves to implement requirements under Solvency II relating to governance and fitness and propriety and also serves to include some aspects of the SMCR.
A key feature of the SIMR is the requirement of firms to identify key functions in the business and individuals who are in charge of these key functions. Such individuals should be fit and proper for their roles and will need to be pre-approved by the PRA, and the FCA must also give its consent. Chief executive officers, chief financial officers, chief risk officers, heads of internal audit, chief underwriting officers and chief actuaries will be included. Furthermore, in relation to international insurance groups, the PRA will also need to pre-approve individuals employed by a parent or group entity where those individuals are involved in decisions affecting the firm’s U.K. business. This applies where the individual exercises direct influence over the U.K. regulated entity and not merely a strategic influence. The existing APER will continue to apply in respect of less senior insurance staff.
In connection with the implementation of the Solvency II requirement that there be appropriate and transparent allocation of oversight and management responsibilities within each firm, firms will be required to draw up and maintain a “Governance Map” which sets out the names and roles of the individuals who effectively run the firm as well as individuals with key functions within the firm. Firms will be obliged to update the Governance Map at least quarterly and also when there is a significant change to the firm’s governance structure or to the responsibilities of a key function holder.
Senior managers within scope of the SIMR and employees within the scope of the FCA’s regime for approved persons will be subject to a new set of conduct rules in place of the existing Statements of Principle and Code of Practice for approved persons under the APER. These rules take the form of short statements of high-level principles and standards of behavior. Most employees of insurers who are based in the U.K. or who deal with customers in the U.K. will also be subject to application of these rules by the FCA. Three generic standards will apply to all such persons, namely: acting with integrity; acting with due skill, care and diligence; and dealing with the PRA and other regulators in an open and co-operative way.
The insurance industry will experience a significant shift in organizational structures as a result of the introduction of the SIMR. In 2015, senior managers in insurance firms with operations in the U.K. have been making progress in preparing for the key 2016 transition dates. There are four key deadlines:
January 1, 2016: firms must have Governance Maps in place and must have submitted a scope of responsibilities form for new senior insurance manager applications.
February 8, 2016: firms must have submitted grandfathering notifications to the PRA and FCA in respect of existing significant influence function holders.
March 7, 2016: the new conduct rules will apply to FCA- approved persons and senior managers within the scope of the SIMR.
September 7, 2016: firms must have submitted a scope of responsibilities form for grandfathered individuals to the PRA.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review