The Senior Managers and Certification Regime (SMCR) is being extended to all solo-regulated firms such as insurance brokers from 9 December 2019. So what does this change in regulation mean for insurance brokers and what should you do to prepare?

What is the SMCR?

In the wake of the 2008 financial crash, the SMCR was introduced in order 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

Approved by parliament in 2013, the SMCR initially applied only to the banking sector but in 2016 the legislation was amended to extend the rules to all FSMA authorised firms.

Will SMCR regulation apply to all insurance brokers?

Yes. All firms currently regulated by the Financial Conduct Authority under the existing FCA Approved Persons regime will need to be ready for the change coming into force on 9 December 2019. In other words, if your brokerage registers Approved Persons, such as directors, with the FCA then you will be regulated under SMCR.

For insurers, the changes came into effect on 10 December 2018, however 9 December 2019 is the key date for insurance intermediaries and other solo regulated firms.

What type of firm are you?

SMCR is not a one-size-fits-all regime. In recognition of the vastly different size and complexity of firms covered by the regime, a three-tiered approach has been adopted with different rules for each level of firm.

The categories are:

  • Enhanced firms
    • Largest firms, around 1% of companies or 350 firms
    • Greatest complexity e.g. consumer credit lenders with over £100m regulated revenue, non-bank lenders with over 10,000 outstanding regulated mortgages
    • Substantial potential impact on consumers and markets
    • Subject to additional requirements
    • Not automatically transitioning to SMCR
  • Core firms
    • Firms that do not meet criteria for either enhanced or limited scope status
    • The majority of solo-regulated firms fall into this category
    • Standard SMCR rules
    • Automatically transition to SMCR
  • Limited scope firms
    • Firms currently subject to limited application of Approved Persons regime, e.g. secondary insurance intermediaries, sole traders, Limited Permission Consumer Credit Firms
    • Reduced requirements
    • Automatically transition to SMCR
CategoryDescription of firmExample firmsSMCR impact
Enhanced firmslarge complex firms with substantial potential impact on customers and markets (around 350 firms or 1% of total fall into this category)Consumer credit lenders with over £100m regulated revenue, non-bank lenders with over 10,000 outstanding regulated mortgagesAdditional requirements, no automatic transition to SMCR regime
Core firmsMost firms – those that do not meet criteria for enhanced or limited scope statusMost solo-regulated firmsStandard SMCR rules and automatic transition to new regime
Limited scope firmsCurrently subject to limited application of Approved Persons regimeSecondary insurance intermediaries, sole traders, Limited Permission Consumer Credit FirmsReduced requirements

Key steps to prepare for the SMCR

Here’s what you should do to prepare for the changes at your brokerage:

Identify roles

Everyone in an organisation will fall into one of these categories:

  • Senior Management Function holder (SMF)
  • Certification Function holder
  • Conduct Rules staff member
  • Ancillary staff

Certification Function holder

Conduct Rules staff member

Ancillary staff

Draw up responsibility documentation

All SMFs should have prescribed responsibilities set out in a Statement of Responsibilities. These should be combined into a Responsibilities Map showing how accountability is structured within the organisation.

Give training on Conduct Rules

SMFs and Certification Function Holders must be trained before the rules come into force on 9 December 2019; all other relevant employees (encompassing almost everyone in an organisation) should be trained within the following year.

Put a certification regime in place

You must be able to certify that Certification Function Holders are ‘fit and proper persons’ when the rules come into force, otherwise they will be unable to perform regulatory functions.

Put a regulatory reference regime in place

You should be able to request or give a regulatory reference by the time the rules come into force, in compliance with the rules and with minimal legal risk.

Revise HR documentation

Key documents such as terms and conditions of employment, the staff handbook and policies, disciplinary policies and termination of employment provisions will need to be revised to ensure alignment with the new regime.

Hidden hurdles to introducing SMCR

This might all sound straightforward enough, but beware – there are some potential pitfalls in the transition to SMCR. Early preparation will give you plenty of time to manage these as smoothly as possible.

  • Deciding between different SMCR roles

Some workers will be reluctant to have SMF or Certification Function Holder status because of the added responsibility and risk associated with this. This may bring challenges in terms of HR and employment law, as well as regulatory risk.

  • Employment contracts and staff handbooks

Changes to these will need to be made to reflect the new regime. Employees may resist this or opt to bring forward a career move rather than accept the changes.

  • Poor communication between compliance and HR

We all know communication silos can exist within organisations, despite best intentions. If compliance teams have ownership of SMCR transition, HR aspects can be put on a back burner, leading to stress ahead of the December deadline.

Important dates

9 December 2019 – commencement

On or before this date, firms must:

  • Identify SMFs and Certification Function Holders
  • Train SMFs and Certification Function Holders on Conduct Rules
  • Review contracts of employment

12 months following commencement – transitional period

During this period firms must:

  • Train all other Conduct Rules Staff
  • Assess existing Certification Function Holders and those hired within the transition period
  • Identify new in-period Certification Function Holders

9 December 2019 – commencement

From this date firms must:

• Conduct Rules apply to all staff
• Initial Certification Assessments must be complete
• Company information must be correct on the Financial Services Register
• A compliance regime must be in place for training new staff and re-certifying Certification Function Holders at least once a year

9 December 2020 – post-transitional period begins

From this date:

• Conduct Rules apply to all staff
• Initial Certification Assessments must be complete
• Company information must be correct on the Financial Services Register
• A compliance regime must be in place for training new staff and re-certifying Certification Function Holders at least once a year

We hope you have found Part One of our SMCR guide helpful. Look out for Part Two, where we will take a more in-depth look at the training and documentation needed, and Part Three where we’ll discuss the best ways to transition staff into their new roles.

Here at Stride Insurance Group, we have an unrivalled understanding of the broker market. Partnering with us gives you access to a range of high-quality schemes and outstanding customer service. Why not talk to the team today to find out more about our broker benefits?