The new Senior Insurance Managers Regime – a five minute guide

In this five-minute guide we look at some of the key principles behind the new Senior Insurance Managers Regime (SIMR) and consider some practical questions about its application to your business.

How does the SIMR interact with Solvency II?

Solvency II requirements and the revised SIMR being introduced by the UK regulators run alongside each other but are distinct and should be seen as separate requirements conceptually. The revised list of Senior Insurance Management Functions (SIMFs) is a much more granular and role-specific list than was the case with the previous Approved Persons Regime. The aim of introducing the revised SIMFs is to ensure greater clarity about which individuals have ultimate responsibility for managing the business.

Solvency II requires that as part of its governance a firm identifies key functions in the business. Individuals who effectively run the firm or are in charge of these key functions should be fit and proper for their roles. A notification must be provided to national supervisory authorities of all key function holders.

As is to be expected, some of the people in the business identified as key function holders will also be approved as SIMFs. However, it is also possible to be a key function holder and fall outside the SIMR in which case fitness and propriety is determined by the firm alone (for example NEDs that fall outside any of the specific Committee Chair PRA SIMFs and FCA Significant Influence Functions (SIFs)).

Do we know which functions are ‘key’ functions?

The Solvency II Framework Directive identifies four key functions:

• the risk management function;
• compliance function;
• internal audit function; and,
• actuarial function.

As a minimum, these functions should be identified in the firm. In addition to these specified functions however the PRA suggests that the following should also be identified as key functions in the business:

• the investment function (accordingly, investment managers would be key function holders);
• the claims management function (especially in general or health insurance firms);
• the IT function; and
• the reinsurance function (where this role is different to other key functions such as risk management).

There may also be other ‘key’ functions in the business. This should be determined on a case by case basis by the firm. For example, HR or Legal teams may in some firms be considered to be ‘key’ functions. PRA Supervisory Statement (SS35/15) states that firms will be expected to take the following matters into consideration in their assessment: whether the function is essential for the proper functioning of the firm or group considering its risk profile and business; whether the function assumes material or complex financial market risks as part of its activities, or assumes material credit risks through the activity of providing loans; whether the function needs a competence that is difficult to replace; or whether any failure in the operation or effectiveness of the function may seriously threaten the interests of the insurance firm or group or its policyholders.

How will the new regime apply to EEA firms passporting into the UK?

The PRA does not have any jurisdiction over an EEA incoming branch due to the Solvency II principle of home state supervision. The FCA has supervisory powers in only limited areas. Accordingly, it is anticipated that the FCA will require that the Money Laundering Function (CF11), the Significant Management Function (CF29) and the Customer Function (CF30) will be required to be approved in incoming EEA branches, although clear rules or guidance have not been published in this area.

How far does the SIMR extend into parent entities?

Included in the list of PRA SIMFs is the new Group Entity Senior Insurance Manager Function (SIMF7). Anyone who has a significant influence on the management or conduct of the affairs of the UK regulated entity and is employed by, or is an officer of, a parent or holding company may therefore need approval for this role. The PRA expects firms to put forward for approval individuals employed by a parent or group entity for SIMF7 where those individuals are involved in decisions affecting the firm’s UK business. It is important to remember that the individual must exercise a direct influence over the UK regulated entity and not merely exercise a purely strategic influence.

How can firms ensure that the right people follow the new conduct requirements?

Both the PRA and FCA will introduce new conduct requirements that can be applied to individuals approved by either regulator – confusingly the PRA will have 'conduct standards' and the FCA 'conduct rules'. There are three individual standards that are applied not only to those in a key function (and therefore also a SIMF) but also to individuals that 'perform' a key function (i.e. those working within the relevant function). One way to ensure compliance with the individual standards is to include these as requirements for all staff in the Staff Handbook. Other, more role specific, rules and standards should be applied in individual employment terms and conditions.

Do firms still need to seek regulatory approval for all non-executive directors?

No. Only those NEDs that are in the specified non-executive SIMFs or FCA SIFs must be approved. These are:

• Chairman (SIMF9), Senior Independent Director (SIMF14) and Chairs of the Audit (SIMF10), Remuneration (SIMF12) and Risk Committees (SIMF11) required by the PRA as SIMFs.
• Chairs of the Nomination Committee (CF2a) and With-Profits Committee (CF2b) required by the FCA as SIFs.

Other NEDs need only be ‘notified’ to the PRA as being key function holders.

Can two people perform one SIMF?

In limited circumstances firms may be able to have more than one individual performing a SIMF (for example in a job-sharing arrangement). However, the PRA will expect to see clear justification of how the relevant responsibilities are apportioned between the individuals along with details of each person’s reporting line.

Can one individual perform several SIMFs?

Unless rules or a Solvency II Delegated Act require a role to be performed independently (e.g. Audit) roles may be combined. The PRA can decide not to approve duplication of roles where there could be a significant conflict of interest from combining the functions that would be difficult to manage satisfactorily (such as Chairman and CEO) or where the individual’s qualifications or competencies render them fit only for one of the proposed roles.

What you should be doing in preparation for the SIMR?

• Mapping the new SIMFs to existing roles. Consider any new approvals needed.
• Determining which functions are key and therefore who should be ‘key function holders’.
• Developing the Governance Map showing responsibilities and reporting lines.
• Planning changes to senior individual’s terms and conditions or staff handbooks.
• Organising information required for new approval process.