Alongside the Solvency II requirements, the PRA will replace the existing approved persons regime with the SIMR in order to more clearly delineate responsibilities within firms and to ensure greater personal accountability in senior management. Instead of the current PRA approved persons, Senior Insurance Management Functions (SIMFs) will need approval. These will be the PRA controlled functions under the Financial Services and Markets Act 2000. With a closer alignment between specific roles and responsibilities, the PRA hopes to make lines of accountability clearer and to be able to more easily hold individuals to account when needed. The requirements for each SIMF will be more closely tailored to the specific role that individuals undertake, enabling the regulator to better assess whether the person to be appointed is suitable for that role.
Alongside the newly allocated SIMFs, a list of ‘prescribed responsibilities’ must be allocated to all those who have been approved as either SIMFs or Financial Conduct Authority (FCA) significant influence functions. The full list of those in key functions for Solvency II purposes, SIMFs and their responsibilities must be set out in a governance map which shows lines of reporting and organisational responsibility. The PRA proposes that this map should be used as a tool in the supervisory process.
The FCA will make some amendments to its list of approved persons but will broadly maintain the list of functions for which approval must be sought. Director (CF1), Compliance (CF10), Cass operational oversight (CF10a), Money Laundering Reporting officer (CF11) and Significant management (CF29) remain significant management functions that require approval.
The SIMFs for which pre-approval from the PRA will be required are:
- SIMF1 – Chief Executive
- SIMF2 – Chief Finance
- SIMF4 – Chief Risk
- SIMF5 – Head of Internal Audit
- SIMF7 – Group Entity Senior Insurance Manager (capturing those in parent or subsidiary companies who direct the business but who are not already SIMFs)
- SIMF9 – Chairman (NED role)
- SIMF10 – Chair of Audit Committee (NED role)
- SIMF11 – Chair of Risk Committee (NED role)
- SIMF12 – Chair of Remuneration Committee (NED role)
- SIMF14 – Senior Independent Director (NED role)
- SIMF19 – Third Country Branch Manager (only applied in non-EEA branches)
- SIMF20 – Chief Actuary
- SIMF21 – With-profits Actuary (where relevant)
- SIMF22 – Chief Underwriting Officer (applicable to general insurance firms and Lloyd’s managing agents)
- SIMF23 – Underwriting Risk Oversight (only applied to the Society of Lloyd’s)
Notably, certain Non-Executive directors (NEDs) will require approval under the SIMR: the Chairman (SIMF9) and Chairs of the Audit (SIMF10), Risk (SIMF11) and Remuneration (SIMF12) Committees. Similarly, where a firm has a Senior Independent Director they should be approved (as SIMF14). The FCA has determined that two NED positions, where such committees exist, should require pre-approval as governing functions: the Chair of the Nominations Committee (CF2a) and Chair of the With-Profits Committee (CF2b).
Both the PRA and FCA will introduce new conduct requirements: the PRA will have ‘Conduct Standards’, while the FCA will have ‘Conduct Rules’. These will be based upon the existing Statements of Principle currently in APER. The FCA Conduct Rules and PRA Conduct Standards are largely identical. However, the PRA will additionally require that individuals have regard to the interests of policyholders while the FCA will require individuals to treat customers fairly and observe proper standards of market conduct.