When an anniversary is actually a deadline: insurers’ final transition to SM&CR

22 October 2019

While 10 December 2019 marks the first anniversary of the SM&CR for insurers, it is easy to forget that it is also a deadline. As the senior manager element beds down, one year on insurers must also have concluded the assessment process for Certified Persons, and provided training in the conduct rules to all remaining staff.

Messages from the FCA suggest it has not forgotten this nuance. Jonathan Davidson, FCA Director of Supervision recently described SM&CR as being an accountability regime about leadership rather than just a compliance exercise. Each of the component parts of the regime (e.g. the Senior Managers Regime, Certification Regime, and the Conduct Rules) needs to work together to deliver good customer outcomes; it’s not sufficient to embrace the first third, and then just tick the boxes for the remaining two thirds.

The conduct rules provide the base layer of regulatory standards, but it is for insurers to make them relevant and apply them to their own staff. The rules applied to senior managers under the Senior Insurance Managers Regime, but were expanded to Certified Persons last year. But from this December, they apply to almost all staff. This population is broader and more diverse than just SMs and your CR population, so you could rightly expect the effort to drive the conduct rules across the cohort is proportionally more.

Critical to success is that insurers need to show how the conduct rules work to reduce harm to consumers. For example, asking individuals to act with integrity seems straightforward enough. But how do those requirements interact with the variety of people’s day-to-day roles and the ways in which they impact on consumers? How do they interact with any code of conduct that an insurer may already have in place?

As part of an insurance firm’s culture, being able to point to robust whistleblowing processes, to evidence that you have provided training and promoted a culture that empowers individuals to speak out when they see poor consumer outcomes is important. It is also the minimum I would want to see as the SM discharging his or her ‘reasonable steps’. If in doubt, asking the question of the SM responsible for the conduct rules across the firm can provide a very sharp focus to their desired necessary steps. What would it take for you to feel comfortable with that personal accountability?

Underpinning this, insurers need systems and processes to deliver training, to conduct any disciplinary processes and then to report any conduct rule breaches. The recent SM&CR Banking Stocktake Report highlighted the need to ensure that training has been sufficiently tailored to job roles, that the conduct rules have been mapped to a firm’s values and that individuals can articulate what a conduct breach looks like in the context of their business.

Regulators will inevitably also review an insurer’s certification process, including how they assess fitness and propriety. This is not just a matter of providing a physical certificate to your staff. As the FCA’s recent report illustrated, firms must be able to demonstrate the effectiveness of the assessment process, how they use subjective judgements and the ability to ensure consistency across the population. Gone are the days of the FCA authorising individuals as CF30 holders; insurers now need to be able to demonstrate how they have confirmed and tested that an individual is fit and proper. This is a tangible outsourcing of regulatory risk from the FCA to insurers.

The SM&CR anniversary is not only significant in its own right, giving insurers the opportunity to reflect on their implementation of the regime, but it also marks the deadline of the remaining parts. Despite not being as headline grabbing as the SM elements of the regime, the wide-ranging nature of the conduct rules and certification population makes this the less exciting, but equally important component of the regime. Set against a regulatory backdrop of vulnerable customers, a focus on value, competition and pricing, this is a key piece of work that should be front and centre of firm’s activities, driving a strong culture and demonstrably improved consumer outcomes. If your implementation plan does not, do you need to think again?

Jane Portas

Jane Portas | Partner
Profile | Email |  +44 (0)7718 978481

Ann-Marie Stone

Ann-Marie Stone | Senior Manager
Profile | Email | +44 (0)7740 242467

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