Conduct Risk Management and the Role of HR

Conduct Risk Management and the Role of HR [1]

Here are the 5 golden rules of HR in a regulated environment:

  1. Build a strong, qualified board of directors and evaluate performance. ...
  2. Define roles and responsibilities. ...
  3. Emphasize integrity and ethical dealing. ...
  4. Evaluate performance and make principled compensation decisions. ...
  5. Engage in effective risk management.

In simple terms this is what the FCA Supervisors are looking for whatever the size of your firm. It is all proportionate.

Kate Foreman and the RWA HR team exist to provide a proportionate hand to help you achieve the status of ‘HR compliant’:

If you cannot answer ‘yes’ to each of the following questions [2] then get in touch:

  1. Do you have a strong, qualified board of directors and can you evaluate performance?

Boards are often historic, built from the basic blocks of the creators of a business.  That’s good, because it means that there is a buy-in to the idea of doing things that are right for the company. 

But who will ensure that directors understand what their duties are and, importantly, that the interests of the firm’s customers are also considered?  Creating a board that not only reflects the interests of the shareholders, but also the employees and customers is paramount to the long term success and sustainability of the firm.

Few directors of SME insurance broking firms receive any kind of evaluation of their management and day-to-day administration. 

A firm may appoint a non-executive director (NED) to help them achieve some degree of objectivity, but this is only effective when the NED has a degree of objectivity themselves: they are often appointed for the wrong reasons just to satisfy the FCA, but the Regulator sees through this and can get cross with you. 

Famous people or friends are common appointees – but it doesn’t mean that they have an understanding of the business sector in which the firm functions.

Good HR management plans for the future, by looking at long-term business goals and succession planning, including evaluation of the roles that directors have and the impact they have on the everyday business of the firm.

It’s not uncommon in broking businesses to see a family firm that has become successful but then experiences difficulties when a major event occurs, such as the death of a founder.  Just because an employee is a member of the family doesn’t necessarily indicate that they have the requisite knowledge or experience required to take the reins and lead the business into the next 10 years.  And what was easy to manage when there were only 15 employees suddenly becomes an altogether different proposition when there are 50.

You probably wouldn’t appoint a finance director who doesn’t have accountancy qualifications would you?  But you should have directors who will question the decisions that he or she makes.

There are many succession planning services out there where the objective is rather more than just thinking of you.

  1. Can you define roles and responsibilities?

It’s an old cliché but nonetheless a truth that you can’t score a goal if you don’t know where the goalposts are [3].  Defining roles and responsibilities in the form of job and role specifications therefore becomes crucial.  It also makes the performance of the individual something that can be monitored and evaluated and, if necessary, corrected.

Would you allow a receptionist to make decisions about what insurers the firm should trade with?  Or leave them to ensure that a customer’s policy goes on risk on a Friday afternoon?  Hopefully the answer is no, because you recognise that it wouldn’t be prudent – it’s not part of the receptionist’s role or remit.  So how do you ensure that the receptionist understands that, if you don’t give them firm guidelines on what they are permitted to do?

Job and role specifications allow you to identify what an individual’s terms of reference are and when structured correctly also allow you to evaluate the performance of the individual in an objective and fair way.  There should be no surprises when it comes to knowing what an employee - or director - is involved with. 

A good HR specialist can help you document the tasks that you want everyone in your firm to undertake and in words and with clarity that a regulator can understand and approve. Often it is the lack of evidence which cause the FCA concern.

  1. Can you show that you emphasise integrity and ethical dealing?

It’s common for successful firms to have a mission statement and code of conduct that is aligned to the philosophy of the board.  Not just for the sake of paying lip-service, but as a basic tenet of the firm’s ambitions and culture.

There is no business that cannot benefit from emphasising integrity and ethical dealing: it sets the tone for how individual employees are likely to behave when they are out of the office environment and, ultimately, how customers are treated at all stages of their transactions with a firm.  You might say it’s about ensuring that your customers are treated fairly and it can only become part of the firm’s philosophy if it begins at board level – leading from the front.

A good HR specialist helps you translate your beliefs and culture into laid down procedures and documents that your team can refer to and learn from.

  1. Can you evaluate performance and make principled compensation decisions?

Should performance be linked to reward?  If it is, how do you ensure that your employees are not rewarded for simply selling as much as possible, without due regard to the appropriateness of what they’re selling? The FCA hate it if you cannot do this.

Are bonuses and reward structures aligned o your philosophy of integrity and fairness, or do they encourage employees to make poor decisions?

Think back to the days of direct sales in the life insurance industry; churning because an employee’s ability to pay their mortgage and feed their children was dependent on how much commission they earned in a month.  Bonus and reward decisions need to be made based on the evaluation of an employee’s performance against their job and role specification, not how much money they bring into the firm, at whatever cost.

A good HR specialist can help you design a compliant remuneration structure which will not break the bank or discourage quality selling.

  1. Can you engage in effective risk management?

What are the risks that are associated with the business?  They might be tangible – a PI claim from a disgruntled customer for example.  They might also be the prospect of an employment tribunal case for discrimination – uncapped and possibly very expensive for the firm.  How could that risk have been managed actively?

The answers are fairly straightforward:  firstly, with job and role specifications that accurately reflect the individual’s remit and the boundaries of their authority and with unambiguous policies and procedures that clearly state what is expected of the individual in their daily work.  Policies and procedures that reflect the legal employment requirements of the day can and do prevent expensive litigation.  Who ultimately suffers if a firm has to pay out on an expensive claim?  If it damages the financial (and reputational) integrity of the firm it may well be the paying customer.

Secondly, by ensuring that all employees (including the board) have the knowledge, skills and understanding to apply to every interaction they have with their customers and with each other.

RWA has one of the finest team of risk management advisers in the insurance broking market.

We offer proportionate HR Consultancy advice ranging from the helpline service included in most of our consultancy packages through to complex and ongoing appointments for larger firms and Special Situations.

If you have read this article and thought that the FCA might be cross with you or simply that you want to follow some of the ideas mentioned, then start with a free helpline enquiry.

Our business is making your business better and the regulator comfortable with the way you run your business and work with your clients.


Kate Foreman
Director of People and Learning


Robin Wood
Chartered Insurance Practitioner

[1] Human Resource Management
[2] McInnes Cooper 2016
[3] Ian Ritchie: Otterbourne

About the author

Kate is the chairman and co-founder of RWA and has worked for the company for nearly 20 years. She is a fan of developing practical, workable, business-led policies and procedures. Kate has specialist training experience within the financial services sector, including major general insurers, and the Lloyd’s underwriting and broking market. She has researched and developed numerous training programmes, both for commercial and in-house use. She has extensive experience of developing in-house and public training programmes for business skills, including Diversity, Employment Law, Management and Leadership, Motivation, Coaching and Feedback, Communication Skills and EQ.

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