At first glance, the SMCR seems unnecessarily complicated; and it is.
Some of that complexity falls away with familiarity; and, after that, the SMCR becomes almost transactional. A (re)insurer “merely” has to:
- Categorise (or re-categorise) its people: taking them 1 at a time, is this person a Senior Management Function (SMF) holder; a Certification Function employee; a member of our Conduct Rules staff; or one of our ancillary staff? Almost everyone has a part to play
- Allocate the prescribed responsibilities to its SMFs;
- Give every SMF a duty of responsibility;
- Agree a Statement of Responsibilities with every SMF; and lay everything out in a Responsibilities Map;
- Train its SMFs and Certification Function holders on the Conduct Rules (this year);
- Train almost everyone else on the Conduct Rules (next year);
- Get itself into a position where it can certify every Certification Function holder, as a “fit and proper person”, from December 2019 – taking into account the fact that, if a person cannot be certified, he cannot perform his regulatory functions; and
- Get itself into a position where it can ask for and give a regulatory reference, in a way that is rule compliant, without creating unnecessary legal risk.
Most (re)insurers already have some of the documents and processes they need; and those that do, are part way there. But when you try to apply the rules in the real world, things become more “interesting.” The boundary between the SMFs and the Certification Function employees is not as clear as it might be. The result: that some people could be SMFs or Certification Function employees, and the (re)insurer has to decide whether to bring them into the SMF population, or push them out. The boundary between Certification Function employees and Conduct Rule staff can be more difficult to manage because, when analysed, the FCA rules (in particular) sometimes have quite unexpected results. Some people want to be recognised as senior managers, and others do not want the extra layer of risk and responsibility that brings. So, the new rules quickly generate employment law and HR risks and issues, as well as regulatory risk.
As they finalise their preparations for the new regime, (re)insurers are making changes to their employment contracts and staff handbooks. They are also changing their appraisal forms and processes; and beginning to think about what they (and their relevant employees) need to do, between now and December 2019, if they want to be in a position where everyone who needs a certificate, can be given one. And that is forcing a small number of (re)insurers to have difficult conversations, with a handful of employees. At the same time, some employees are thinking about a career move, before the referencing rules “kick-in”, in a way that might trap them in their current role for years to come.
We have noticed that, in many (re)insurers HR and compliance are working closely together to prepare for the SMCR; but in some, this is a compliance-led project, and HR are still relatively “in the dark”. We have also noticed that, when SMF and Certification Function employees are trained by an external provider on both the Conduct Rules, and the regulator referencing rules, the impact of the training is much greater than it would otherwise have been; and that compliance has tended to become “everyone’s problem”, for the first time.
It will be interesting to see how this beds down: in particular, will (re)insurers face the same challenges, and manage them in the same ways, as the banks that went before? Or will they face new challenges, and find new and innovative solutions?
If we regarded this as a curse, we would be inviting you to live in “interesting times.”
This article first appeared in Insurance Business Magazine, published 4 October 2018.