Blog: Don't rest on your SIMR laurels

Since 1 January, UK-regulated insurers have been required to maintain an internal governance map, with failure to do so leading to potentially serious and financially painful consequences.

The map must set out how the firm is managed, clearly delineating responsibilities and reporting lines, running from the board of directors through the chain of command to all key functions. It is a principal element of the Senior Insurance Managers Regime.

The SIMR substantially mirrors the Senior Managers Regime for banks. It also strengthens and makes explicit Solvency II requirements.

Many of the approved function designations from the original Financial Services Authority regime have been superseded; the new terminology refers to Senior Insurance Manager Functions. Certain individuals must also be identified as undertaking ‘prescribed responsibilities' under Pillar II of the European Union Directive.

The Financial Conduct Authority and the Prudential Regulation Authority mandated submission of ‘grandfathering applications' – to transpose existing senior managers or directors from the old regime to the new – by 8 February, with all such applications being determined by 7 March, the latest milestone in the SIMR implementation timetable.

But the full implementation of the SIMR remains an ongoing challenge for the industry; substantial work still lies ahead.

The FCA and the PRA did not set out in detail the expected format of individual firms' governance maps. The onus is thus on regulated entities to structure their maps to reflect the activities, scale and complexity of the firm. Going forward, insurers must update their governance maps so that they remain accurate and fit for purpose. The SIMR specifically requires all maps to be reviewed at least quarterly; firms should expect to be challenged to evidence conformity.

Fitness and propriety of directors and senior managers remains a keystone of the SIMR, carried forward from the old Approved Persons regime. Firms must expect robust challenge from the regulators to demonstrate that their F&P policies, procedures and processes are suitable, not just at appointment stage, but on an ongoing basis.

Most attention has naturally focused on those individuals designated as holding SIMF but the SIMR has extended explicit regulatory requirements further down the chain of command.

Thus, a new designated status of Key Function Holders has been created, sitting below the level of SIMF. While these individuals do not require regulatory pre-approval, there is a PRA/FCA notification requirement, and the next SIMR deadline – 7 September – is fast approaching.

Adding a further layer of complexity, the regulators allude to another category of insurers' staff subject to SIMR: ‘persons performing a key function' who are not designated KFH. Guidance on which levels of staff may fall within this designation has been limited.

While the requirements may be restricted to general competency or fitness and propriety, these individuals must be identified internally – and details provided to the regulators, on request.

At first blush, the SIMR may appear to be an almost academic subject, of interest primarily to risk, compliance and governance specialists. In reality, the initiative directly impacts all UK-regulated carriers and their senior management and shareholders.

It is too early to speculate on potential penalties for non-conformity with SIMR requirements. However, under the previous regime, significant penalties were imposed. In one instance, an insurance group was fined £3.35m, its chairman was fined £119,303 and banned for life.

Looking to the future, the SIMR could be strengthened, bringing its requirements even closer to the banking sector's SMR. And the scope of the FCA could be extended, as it was recently announced it would regulate claims management companies.

The compliance race is not over.

David Porter
Technical associate at The Quest Partnership