The Senior Managers and Certification Regime – what do you need to do from 10 December?

A reminder for insurers and re-insurers about annual certification

This article from the Fox Williams LLP SMCR team focuses on the changes for insurers and reinsurers already subject to the SMCR regime, that take effect from 10 December 2019. This article specifically focuses on issues with annual certification, which is the process whereby firms will be required to confirm that staff who hold a Certified Function are fit and proper to do so.

What do you need to do?

By 10 December 2019 insurers and re-insurers must have completed the initial certification process for all Certification Staff (those that hold a Certified Function).

The certification process in effect turns firms, and the employees within the firms that carry out the annual certification assessment, into de facto regulators. It’s now for the firms rather than the regulator to confirm that Certification Staff are fit and proper. It is only if a Certification Staff member is assessed as being fit and proper that they can be certified.

Managing these new certification responsibilities can be challenging and some of the most common questions we are asked by clients include:

• How exactly should fitness and propriety be assessed?
• What are the implications if a relevant member of staff can’t be certified?
• What support and guidance should be made available to staff who are having to assess fitness and propriety?

It goes without saying that a number of regulatory and employment law issues can arise and cause problems if certification is not handled correctly.

Assessing fitness and propriety in practice

Certification Staff should understand the certification process before it is commenced, the factors that will be looked at in determining their fitness and propriety, and what the implications of the assessment are.

The issues for staff assessing fitness and propriety are perhaps more complex. They must apply the FCA’s Fit and Proper (FIT) test and keep appropriate records of the processes. A number of factors go towards a person’s fitness and propriety, but the FCA’s Handbook makes clear that the most important considerations will be a person’s:

1. Honesty, integrity, and reputation;
2. Competence and capability; and
3. Financial soundness.

As to (1), assessors may consider assessing any relevant rule breaches or disciplinary processes, carrying out criminal records checks, and reviewing social media accounts. As to (2), assessors may want to consider an employee’s performance review/appraisal, other relevant feedback, and benchmarks for the particular role they hold. As to (3), assessors may need to carry out appropriate checks with credit reference agencies.

It is worth bearing in mind that being fit and proper from a regulatory perspective does not necessarily equate to a satisfactory business performance. Conversely a high performer may have issues with their fitness and propriety.

How we can help you

Our SMCR team has significant experience of advising on the challenges of certification, having worked with clients in the banking sector on these issues since 2016. Some of the ways in which Fox Williams LLP can assist with the process include:

• Training your Certification Function staff and Certification assessors
• Providing checklists for line managers who have appraisal and FIT review meeting responsibilities
• Advising with your record keeping protocols
• Providing regulatory role profiles to assist line-managers to assess/benchmark against, and
• Providing/reviewing Fitness and Propriety policies for line managers and employees to guide the process.

In the meantime, watch out for future articles which will look at the practical steps and issues insurers and reinsurers need to consider relating to hiring new Certification Staff under the regime, handling disciplinary procedures, and issues relating to Conduct Rules staff.