CP17/25 Senior Managers and Certification Regime (SM&CR). Are you going to do NOTHING?

I am concerned about complacency in relation to the FCA Consultation Paper on Senior Managers and Certification Regime (SM&CR)

You may choose to side with those who urge you to "not panic", but to suggest that insurance brokers do nothing about a consultation paper and wait and see what the Policy Statement requires the profession to do is, in my opinion, not a wise entreaty.

There is no doubt in my mind that this is a quality piece of work by the FCA and as the team at RWA pore over the 392 pages, it is clear that the document is well thought out, well planned and very well presented.

The objectives are very solid also:

The aim of the new SM&CR is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. As part of this, the SM&CR aims to:

  • encourage a culture of staff at all levels taking personal responsibility for their actions
  • make sure firms and staff clearly understand and can demonstrate where responsibility lies

At RWA, rolling over when the FCA is asking for our opinion is not our way and I have to say, it should not be the way of the professional insurance broker.

The last date for feedback is the 3rd November and you can find the Consultation Paper here. https://www.fca.org.uk/publications/consultation-papers/cp17-25-individual-accountability-extending-smcr

We plan to work through August and to finalise our thoughts on the 5th September. We will then report back to our clients publicly.

There will be a number of points I am sure, but as an example, one aspect that concerns us already is the HR and employment issues arising from the concept that staff at all levels must take personal responsibility for their actions, linking that to what will be the FCA's powers of censure and then linking that to contracts of employment and what employers must do to ensure:

  1. a) they have proper contracts of employment in place that record any new responsibilities AND provides adequate consideration for any increased personal and family risk
  2. b) that before the end of the consultation period that they consider fully what tasks the FCA is proposing are responsibilities that will carry the particular threat of personal censure

Under civil law, an employee is expected to behave in a reasonably competent fashion but if they do not, typically they will be acting as an agent of the employer and benefit from the insurance covers put in place by the firm.

Under this proposal, extending the Approved Persons Regime, the employee will have no such protection in certain instances and it is theirs and their families' own assets which will be at risk.

Having designed and placed at Lloyds the first regulatory defence legal expenses policy 25 years ago, I can also tell you that an employee cannot effect cover to protect themselves against FCA fines.

So, can employers offer compensation to cover such risks? It is a minefield.

Here is just one example of a new responsibility:

10.1 - We propose introducing a new Prescribed Responsibility so that all firms, including banking firms, will need to allocate to a Senior Manager, to make sure the firm trains its staff in the Conduct Rules and complies with the FCA notification requirements (as explained in chapter 7).

Now that could be quite a responsibility and failure could mean a personal fine.........

At law, can you expect an employee to take that risk on without appropriate consideration?

A lot to think about in this Consultation Paper, so my suggestion is that someone in every authorised firm (perhaps a committee of senior managers) should take the time to understand exactly what the Consultation Paper contains and if necessary, say something. We disagree with those who suggest we should just wait and see what happens.

We also think there is a very direct link with the IDD Consultation Paper in relation to certification of competence. Again, self-certification is the order of the day so there will have to be a lot of work and advice taken on what constitutes competence and what an assessment and self-certification really means.

Consultation Papers are not just about disagreement but also about statements of confusion and lack of understanding.

The FCA is not bound to ensure that insurance brokers can make an informed decision but please trust me that the policy makers at the regulator would be pleased to meet that objective, so if you do not understand something, do make that part of your feedback.

The Senior Managers and Certification Regime (SM&CR) is not an issue that the FCA can avoid (it comes from Europe) and at first study, I do like what they are proposing, but my purpose in life is to defend the interests of the SME Insurance Broker and their clients. I urge the profession to look closely and not let this CP17/25 pass us by without responding to the FCA's request for comments.

I assure you that the last thing the FCA want is to hear nothing and create statutory provisions which just don't work.

In my opinion, the Senior Managers and Certification Regime (SM&CR) is quite an improvement on the Approved Persons Regime for General Insurance Brokers but there is a lot of detail and there might also be a bit of devil to uncover yet!

Robin Wood
Chartered Insurance Practitioner

About the author

Robin Wood founded RWA in 1992. He is an acknowledged Expert on insurance broker's duties and Conduct Standards and Risk Management and has been an Expert to the courts on a number of reported cases including ​Environcom v Miles Smith, The Café De Lecq case and Eurokey v Giles.

Robin is happy to advise anyone who wants to know how to meet good and reasonable standards of conduct and behaviour whether that be a sole trader or a regulator. Robin has written a number of important guide books on topics such as Training & Competence, The Duty of an Insurance Broker, The Insurance Act and Professional Standards of Insurance Brokers. A regular speaker at industry conference events and Masterclasses, Robin is an engaging presenter who is known for filling a room and providing a challenging and effective delivery. He is a Member of the Expert Witness Institute.

Robin Wood

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