What does the BoE’s SMCR extension mean for insurers?

What does the BoE's SMCR extension mean for...Whether it’s MiFID II, the GDPR, PRIIPs or the inevitable after-effects of Brexit, it’s fair to say that many organisations face an incredible burden as they work towards compliance with upcoming regulations.


Businesses could therefore be forgiven for being less than enthusiastic that the Bank of England’s Prudential Regulation Authority (PRA) has announced that consultations are underway to extend the Senior Managers and Certification Regime (SMCR).


The PRA published a consultation paper in late July that contained proposals to widen the scope of the SMCR to include all firms authorised by the Financial Conduct Authority – approximately 47,000 organisations.


While the SMCR has always affected banks, PRA investment firms and some insurers, the new rules will now apply to all insurers, reinsurers and managing agents. But what does this mean for the insurance industry?

What changes are set to occur?

Insurers have previously fallen under the Senior Insurance Managers Regime (SIMR), which has less stringent conditions than the SMCR.


However, organisations will now be designated as one of three groups within the extended SMCR, depending on their complexity, size and the impact on customers:

  • Limited scope firms: These businesses will have fewer obligations and operate under a streamlined SMCR system;
  • Core firms: The majority of companies will be included in this category, which will act as a baseline for the SMCR guidelines;
  • Enhanced firms: Organisations facing additional requirements, although the FCA predicted this will account for fewer than one per cent of enterprises.

The extended regime, which will be introduced next year, has three core components that reflect the key elements of the original SMCR.


Senior Managers Regime: There will now be Senior Management Functions (SMFs), with individuals being accountable for their personal conduct. SMFs are likely to include a range of senior roles within companies, including chairs, CEOs, executive directors and compliance oversight leaders.


Certification Regime: Businesses will be required to annually certify that key employees are fit and proper for their roles. This includes people in positions that could have a significant impact on the organisation, its customers and/or market integrity.


Conduct rules: A new set of rules will replace the existing Approved Persons principle in an effort to provide consistent practices to which regulators can hold key individuals to account.

Preparing to comply

Grant Lee, financial services risk and regulation partner at PwC, said the proposals are likely to have a “diverse” and “extensive” impact on firms.


“Our experience of the banking and insurance regimes has shown that firms need to think about the regimes in conjunction with wider governance structures and policies,” he explained.


“Firms need to engage now – some banks failed to engage early with the proposals and found the subsequent process more challenging than they expected.”


At a time when organisations are facing numerous additional regulatory burdens over the coming year, the SMCR extension is likely to cause extra pressure for compliance professionals.


If you’d like to discuss your preparedness for SMCR and other regulations that are on the horizon, please talk to a member of the team at Barclay Simpson.


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