LMA GUIDANCE:
SENIOR
INSURANCE
MANAGERS
REGIME (SIMR)
DECEMBER 2015
LMA GUIDANCE – SENIOR INSURANCE MANAGERS REGIME (SIMR)
1. SUMMARY
Starting November 2014, the PRA and FCA issued a joint series of three consultation papers (CP26/14,
CP7/15 and CP13/15) proposing changes to the current Approved Person Regime1. In part, the proposed
changes were intended to address certain governance and fitness & propriety requirements under the SII
Directive. The regulators have since published Policy Statements (PRA PS3/15, PRA PS22/15 and FCA
PS15/21) which have included new rules to implement the new regime. Published alongside PS22/15 is a
Supervisory Statement (SS35/15) which sets out the PRA’s expectations of firms in relation to the new
regime. The PRA expects to issue a further consultation on regulatory references later in 2015, with final
rules to be made before the commencement of the SIMR (7 March 2016).
This guidance is intended to provide a summary of the possible implications for managing agencies’
governance structures and required regulatory approvals.
2. THE PRE-SIMR APPROVED PERSONS REGIME
Broadly, the pre-SIMR Approved Persons Regime has remained unchanged since the Financial Services and
Markets Act 2000. However, since the formation of the PRA and FCA, for dual regulated firms (including
managing agencies), each regulator has assumed responsibility for the pre-approval of individuals to
various roles.
The pre-SIMR Approved Persons Regime is as follows:
PRA Controlled Functions
CF1
Director
CF2
Non-Executive
CF3
Chief Executive
CF4, CF5, CF6
Partner/Director of Unincorporated Association/Small Friendly Society (not applicable)
CF12
Actuarial Function (not applicable to all managing agents - applies only to long-term
insurers)
CF28
Systems and Controls (could apply - responsibility for reporting to the Board in relation
to its a) financial affairs; b) setting and controlling risk exposure or c) adherence to
internal systems and controls, procedures and policies where responsibility does not
fall under another controlled function)
FCA Controlled Functions
CF1
Director (for FCA-only regulated firms)
CF2
Non-Executive (for FCA-only regulated firms)
CF3
Chief Executive (for FCA-only regulated firms)
CF4, CF5, CF6
Partner/Director of Unincorporated Association/Small Friendly Society (not applicable)
CF8
Apportionment and Oversight
CF10
Compliance Oversight (not necessarily applicable to managing agents)
CF10A
CASS Oversight (not applicable to managing agents CASS ‘client asset rules’ firms
only)
CF11
Money Laundering Reporting (not applicable to managing agents)
CF29
Significant Management Function (could apply - only if activity is not captured under
another CF)
CF30
Customer Function (not applicable to managing agents - relates to advice to clients)
1
The LMA responded to each consultation. All LMA responses to regulatory consultations can be found on the LMA
website.
1
2.1 The regulatory rationale for change
The PRA committed to reforming the Approved Persons Regime for the banking sector as part of the
Financial Services (Banking Reform) Act 2013. Whilst the PRA recognises that there are differences
between banks and insurers, its intention is to operate a single, consistent regime wherever possible and
the SIMR reflects this aim. In addition, the PRA is required to implement its SII obligations regarding
fitness and propriety.
Through its consultation process, the PRA proposed:
 a set of PRA Senior Insurance Management Functions
 rules on the allocation of responsibilities to senior insurance managers including a set of ‘Prescribed
Responsibilities’
 rules requiring the notification and fit and proper assessment of individuals responsible for ‘key
functions’
 rules describing how firms should assess the fitness and propriety of SIMFs and persons performing
key functions
 a set of specific Conduct Standards to be applied to all SIMFs and key function holders, a limited set
of conduct standards for “notified NEDs”2, and a set of generic conduct standards to be applied for
all persons performing a key function.
3. THE NEW PRA SIMR
The revised regime is designed to cover those persons who effectively run the business, or have
responsibility for important, or critical, areas of the business. The scope of the new regime is summarised
below:
Scope of new Approved Persons Regime
Senior Insurance
Management Function
Key Function Holders
Persons working within
Key Functions
These are the ‘controlled functions’ as defined in section 3.1. All SIMFs
require pre-approval by the PRA. There are certain prescribed responsibilities
that must be assigned to them and they are subject to both fit and proper,
and conduct standards.
These persons must be notified to the PRA, who will assess their fitness and
propriety on an ex-post basis. However, Key Function Holders do NOT require
PRA pre-approval. Firms must assess their fitness and propriety, including
adherence to conduct standards, on an ongoing basis.
These persons are not subject to any regulatory approval or notification.
However, firms must assess their fitness and propriety, including adherence to
conduct standards.
3.1 Senior Insurance Management Functions (SIMFs)
Under the pre-SIMR regime, the PRA is responsible for the pre-approval of all individual CF1 Director and
CF2 Non-executive appointments in respect of PRA authorised (dual regulated) firms. Going forwards, it
will expand the scope and granularity of its pre-approval requirements to include the following Controlled
Functions which will be designated as Senior Insurance Management Functions [other executive or nonexecutive directors will no longer be subject to PRA approval, but some of these may become subject to
FCA approval – see section 4.1 below]:
SIMF1
2
Controlled Function
Description
Chief Executive
Officer
“The function of having responsibility, under the immediate
authority of the governing body, alone or jointly with others, for
carrying out the management of the conduct of the whole of the
business (or relevant activities) of a firm”
NEDs who are not a SIMF, but of whom the PRA is still required to be notified
2
SIMF2
Chief Finance Officer
“The function of having responsibility for the management of the
financial resources of a firm and reporting to the governing body of a
firm in relation to its financial affairs”
SIMF4
Chief Risk Officer
“The function of having responsibility for overall management of the
risk management system specified in Conditions Governing Business
3.” (Transposition of SII requirements)
SIMF5
Head of Internal
Audit
“The function of having responsibility for management of the
internal audit function specified in Conditions Governing Business 5.”
(Transposition of SII requirements)
SIMF7
Group Entity Senior
Insurance Manager
“The function of having a significant influence on the management
or conduct of one or more aspects of the affairs of a firm in relation
to its regulated activities (other than in the course of the
performance of another senior insurance management function) and
which is performed by a person employed by, or an officer (other
than a non-executive director) of i) a parent undertaking or holding
company of a firm; or ii) another undertaking which is a member of
the firm’s group”
SIMF9
(NED)
Chairman
“The function of having responsibility for chairing, and overseeing
the performance of the role of, the governing body of a firm”
SIMF10*
(NED)
Chairman
Risk Committee
The function of having responsibility for chairing, and overseeing the
performance of any committee responsible for the oversight of the
risk management system specified in Conditions Governing Business
3.” (Transposition of SII requirements)
SIMF11*
(NED)
Chairman
Audit Committee
“The function of having responsibility for chairing, and overseeing
the performance of any committee responsible for the oversight of
the internal audit system specified in Conditions Governing Business
5.” (Transposition of SII requirements)
SIMF12*
(NED)
Chairman
Remuneration
Committee
“The function of having responsibility for chairing, and overseeing
the performance of any committee responsible for the oversight of
the design or implementation of the remuneration policy of a firm”
SIMF14
(NED)
Senior Independent
Director
“The function of performing the role of a senior independent
director, and having particular responsibility for leading the
assessment of performance of the person performing the Chairman
function"
SIMF20
Chief Actuary
“The function of having responsibility for the actuarial function
specified in Conditions Governing Business 6.” (Transposition of S2
requirements)
SIMF22
Chief Underwriting
Officer
“The function of having responsibility for the underwriting decisions
in respect of material insurance risks that, in relation to managing
agents, are borne by members”
* “only...where UK or EU legislation or guidelines require…certain Board committees”
For all the above roles, a regulatory pre-approval process will operate and the firm will be required to
provide the PRA with relevant information regarding the individual including their skills and experience,
roles and responsibilities, and fitness and propriety.
The PRA has stated that it intends to apply the ‘principle of proportionality’ so that smaller firms will
have flexibility to combine responsibilities for different functions with a single individual.
Grandfathering provisions are being implemented which will reduce the workload for both firms and the
PRA. Details are provided in section 5.
3.1.1 Prescribed Responsibilities
The PRA has identified a set of ‘prescribed responsibilities’ which all firms are required to allocate to one
or more individuals who have been approved for a controlled function by either regulator. These
‘prescribed responsibilities’ are in addition to any specific requirements ascribed to certain key functions
within the ‘Conditions Governing Business’ within the Handbook (effectively the transposition of the SII
Directive requirements; governance, risk management, internal control, internal audit, actuarial function,
outsourcing etc.).
3
A full list of the prescribed responsibilities, and any allocation requirement, is set out in the following
table:
Prescribed Responsibilities
1.
Ensuring that the firm has complied with its obligations…to satisfy itself that
every person who performs a key function is a fit and proper person
2.
Responsibility for overseeing the adoption of the firm’s culture in the day-to-day
management of the firm
3.
Production and integrity of the firm’s financial information and its regulatory
reporting
4.
Management of the allocation and maintenance of the firm’s capital and liquidity
5.
Development and maintenance of the firm’s business model
6.
Performance of the firm’s Own Risk and Solvency Assessment (ORSA)
7.
Induction, training and professional development for all the firm’s key function
holders (other than members of the governing body)
8.
Policies and procedures for the induction, training and professional development
for all members of the firm’s governing body
9.
Responsibility for leading the development of the firm’s culture by the governing
body as a whole
10.
Oversight of the independence, integrity and effectiveness of the firm’s policies
and procedures on whistleblowing and for ensuring staff who raise concerns are
protected from detrimental treatment
11.
Oversight of the firm’s remuneration policies and practices
Prescribed
Allocation
Must be
allocated to
one or more
persons who
are approved
by the PRA
Normal
expectation is
allocation to
the SIMF9
Must be
allocated to
one or more
non-executive
directors
The PRA has also published a list of “Expected Responsibilities of NEDs in Scope of SIMR” (i.e. those NEDs
who are also SIMFs) at Appendix 1 to SS 35/15, which is reproduced in Appendix 4 to this guidance.
3.1.2 Fitness and Propriety
The PRA expects that all those individuals performing Controlled Functions (SIMFs) are at all times fit and
proper. Firms are required to give consideration to the following:
Initial Assessment

Personal characteristics (good repute, integrity etc.)
For SIMF roles a firm is required, with prior consent, to obtain:
UK Criminal Record Check - the fullest information that it is lawfully able to request under Police Act
1997
Overseas Criminal Record Check - the fullest information that it is lawfully able to request under
applicable overseas legislation
Regulatory References – appropriate references3 from previous employers covering at least the
previous 5-years

Level of competence, knowledge and experience

Qualifications

Training (required and/or undertaken)
On-Going Assessment
3

Business conduct

Compliance with Conduct Standards
The PRA is still considering the form and content of regulatory references and intends to issue a further consultation
later in 2015.
4
There is a greater emphasis on all persons performing a key function having appropriate qualifications,
technical competencies, training and personal characteristics to perform their particular functions.
PRA and FCA regulated firms have an obligation under the new rules to provide references and all
‘relevant information’ of which they are aware to other regulated firms, which is relevant to their fit and
proper assessment of an individual.
Firms will have an on-going obligation to inform the PRA of any changes to the identity of ‘key function
holders’ and to inform the PRA of any “information which would reasonably be material to the
assessment of a current or former key function holder’s fitness and propriety”.
3.2 Key Function Holders
3.2.1 Scope
The term ‘Key Function’ stems from SII, though it is only defined in high level terms in the Directive and
EIOPA guidelines which were used as a basis for the PRA’s proposed rulebook definition. SII Key Functions
must include, as a minimum the:




risk management function;
actuarial function;
internal audit function; and
compliance function.
However, ‘Key Functions’ are not restricted to these four functions — ‘effectively running the firm’ is
another example of a Key Function, and the PRA also includes any function that is of specific importance
to the sound and prudent management of the firm. Although the PRA is clear that firms should designate
Key Function Holders only following an appropriate review of their business, by way of example the PRA
suggests that careful consideration be given to the following functions:




investments;
claims management;
IT; and
reinsurance (if separate from the other ‘Key Functions’, e.g. risk management).
There is no regulatory pre-approval requirement for ‘Key Function Holders’ (assuming that they are not
otherwise performing a Controlled Function) however, the PRA will require notification (using Form M) of
anyone performing such a role and the provision of relevant information (skills and experience, roles and
responsibilities and fitness and propriety etc.). The onus is on the firm to demonstrate the fitness and
propriety of all personnel within the scope of the new regime.
Where the PRA has no concerns regarding a notified key function holder, it intends to provide a standard
feedback letter to firms advising that no further information is required at that time.
Each firm is required to identify its SIMFs and specific Key Function Holders within its Governance Map.
Further details on Governance Maps is provided in section 6.
3.2.2 Fitness and propriety
The PRA expects that all Key Function Holders are, at all times, fit and proper. Firms are required to give
consideration to elements described in section 3.1.2 above.
Firms and individuals performing SIMFs and Key Functions should review their internal processes and give
consideration as to how they might evidence to the regulator, if challenged, that they had taken
“reasonable steps” in the performance of such roles.
5
3.3 Persons working in Key Functions
There are no regulatory pre-approval, or notification requirements for persons working in Key Functions
(other than Key Function Holders). However, the PRA expects all persons to whom the Key Function
Holder delegates significant responsibility be fit and proper and to adhere to certain conduct standards.
It is the responsibility of individual managing agents to decide how fitness and propriety is assessed (both
at commencement of employment, and on an ongoing basis). The PRA’s conduct requirements are as
follows:
3.4 Conduct Standards
Tier I – Persons performing a ‘key function’

Acting with integrity

Acting with due skill, care and diligence

Be open and co-operative with the FCA, the PRA and other regulators
Tier II – Additional standards for any SIMF or ‘key function holder’ (i.e. any person with responsibility
for a key function)

Take reasonable steps to ensure that the business of the firm for which you are responsible is
controlled effectively

Take reasonable steps to ensure that the business of the firm for which you are responsible complies
with the relevant requirements and standards of the regulatory system

Take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate
person and that you oversee the discharge of the delegated responsibility effectively

Disclose appropriately any information of which the FCA or the PRA would reasonably expect to have
notice

When exercising your responsibilities, you must pay due regard to the interests of current and
potential future policyholders in ensuring the provision by the firm of an appropriate degree of
protection for their insured benefits
All those subject to the new regime are required to comply with the Tier I standards. In addition, the Tier
II standards apply to all SIMFs and key function holders. Further details on the meaning of the conduct
standards is provided in appendix 1.
For SIMFs and key function holders (including NEDs), the PRA expects the conduct standards to be set out
in their job descriptions or conditions of engagement. For those performing a key function, the PRA
suggests that the conduct standards be detailed in a staff manual or other suitable document.
The PRA also requires firms to ensure that all persons performing key functions (and that would include
PRA notified NEDs Board members) are fit and proper on an ongoing basis. This would require an
assessment of their compliance with certain Conduct Standards.
4. FCA APPROVED PERSONS REGIME
4.1 Significant Influence Functions
Going forwards, it is proposed that, for dual regulated firms, the FCA will have primary responsibility for
the pre-approval of the following Significant Influence Functions:
6
Controlled Function
Description
CF1
Director
“The function of acting in the capacity of a director (other than nonexecutive director) of that firm” (will continue to apply to all CF1 roles
which are not subject to PRA approval)
CF2a
(NED)
Chair
Nominations
Committee
“For a Solvency II firm only, if the firm has a nomination committee, the
chair of the nomination committee function is the function of acting in
the capacity as the chairman of that committee”
CF8
Apportionment &
Oversight
“The apportionment and oversight function is the function of acting in
the capacity of a director or senior manager responsible for either or
both of the apportionment function and the oversight function set out in
SYSC 2.1.3R or SYSC 4.4.5R.” [No longer applicable to managing agents
(SII firms)]
CF10
Compliance
Oversight
The new regime does not change the applicability of CF10 to managing
agents
CF10a
CASS Money
Oversight
Not applicable to managing agents (relates to permission to hold client
money)
CF11
Money Laundering
Not applicable to managing agents (relates to “designated investment
business”)
CF28
Systems & Controls
Could apply only if activity is not subject to PRA pre-approval
CF29
Significant
Management
“only applies to a firm which apportions a significant responsibility,
within the description of the significant management function, to a
senior manager of a significant business unit”
CF30
Customer Function
Not applicable to managing agents (relates to “advice” to customers)
The FCA will require pre-approval of only one non-executive role (CF2a). Non-executive directors serving
on boards who do not fall within either the PRA or FCA pre-approval regimes, as they do not perform one
of the prescribed roles, will become ‘unapproved non-executive directors’.
The scope of the CF10 Compliance function has not been extended by the FCA; it views the ‘compliance
function’ referred to within the SII Directive as relating solely to prudential regulation. Given that Lloyd’s
has embedded a large proportion of the SII tests and requirements within its revised minimum standards
regime there may be an overlap in this regard with the role of the Lloyd’s Senior Nominated Person.
4.2 Conduct Rules
FCA Conduct Rules
1
Acting with integrity
2
Acting with due skill, care and diligence
3
Be open and co-operative with the FCA, the PRA and other regulators
4
Pay due regard to the interests of customers and treat them fairly
5
Observe proper standards of market conduct
SIF 1
Take reasonable steps to ensure that the business of the firm for which you are responsible is
controlled effectively
SIF 2 Take reasonable steps to ensure that the business of the firm for which you are responsible
complies with the relevant requirements and standards of the regulatory system
SIF 3 Take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate
person and that you oversee the discharge of the delegated responsibility effectively
SIF 4 Disclose appropriately any information of which the FCA or the PRA would reasonably expect to
have notice
Firms and individuals performing SIMFs and Key Functions should review their internal processes and give
consideration as to how they might evidence to the regulator, if challenged, that they had taken
“reasonable steps” in the performance of such roles.
7
5. TRANSITION (GRANDFATHERING)
Transition to the new regime will occur in the following two stages:
Date
1
1 January 2016
2
7 March 2016
Description
Implementation of the ‘fit and proper’ requirements in SII for those persons
who will be performing, or will be responsible for, key functions (PRA)
Start of the new SIMR/APR for SII firms. From this date, it is proposed that the
conduct rules will apply to persons performing CFs (i.e. those who are preapproved at firms)
5.1 Eligibility
Individuals approved to perform a CF under the pre-SIMR regime, and who will be moving to a CF under the
new regime may be grandfathered provided:
• he or she is performing an equivalent role immediately prior to the commencement date;
• that function, or part thereof, will become a PRA SIMF or FCA CF under the new regime at the
commencement date; and
• the person has complied with the notification requirements.
This means that an individual who is already authorised under the current APR will not need to apply for a
fresh approval provided they will be performing an equivalent PRA SIMF or FCA CF.
A table detailing the equivalence of roles is provided in appendix 2. An example of how the
grandfathering might be applied is provided in appendix 3.
5.2 Notification requirements
Firms will need to submit a notification to the regulators listing those persons to be grandfathered. The
form to be used for this is “Form K”. The deadline for notifications is 8 February 2016.
The PRA will require all grandfathered individuals to fulfil the requirements of the new regime from
commencement on 7 March 2016. Grandfathering provision will not be available after the deadline and
new applications will need to be made.
For applications that will take effect after 7 March 2016, or for new applications, firms should use an
updated Form A4. Please note that the PRA and FCA are undertaking a further review of the questions in
the updated Form A and the regulators expect to publish the form, together with associated guidance,
prior to 7 March 2016.
6. GOVERNANCE MAPS
Under the proposed regime it will be mandatory for a firm to compile and maintain a ‘Governance Map’
(which may comprise several documents) recording the positions of those that effectively run the firm,
along with the key functions within the firm and the names of the individuals in each of these positions or
with responsibility for a key function. This ‘Map’ should also record the allocation of significant
management responsibilities and reporting lines for each of these senior persons within the firm, and any
wider group, and define the matters reserved for the Board (including the terms of reference of its
committees). The Governance Map should also include a summary of the information to be provided in the
Scope of Responsibilities Form and made available to supervisors (on request) from 1 January 2016.
Managing agents will need to have Governance Maps in place by 1 January 2016.
The Map should be clear and coherent, and demonstrate an effective governance structure. The intention
is that such documentation will be used:
4
The current Form A can be found here.
8
 to identify the relevant individual for regulatory enquiries
 to understand how the allocation of responsibilities to individuals has changed to reflect changes to
the insurer’s business model or as a result of changes in the external environment
 to clarify which individuals are ultimately responsible for certain actions which supervisors expect
the insurer to take.
The ‘Governance Map’ should be updated at least quarterly, and should be made available on request to
the PRA/FCA. If significantly modified or revised, a copy of the new version must be provided to the PRA.
Each previous version of the ‘Governance Map’ must be retained for a period of 10 years.
7. SCOPE OF RESPONSIBILITIES FORM (SOR)
For all SIMFs, managing agents must provide the PRA with a Scope of Responsibilities Form (SOR). For new
applications, the SOR must be provided with the Form A application. However the timescale for
submission has been extended to 7 September 2016. However, note the above point (in Section 6) about a
summary to be included in the Governance Map and made available to supervisors (on request) from 1
January 2016.
The PRA’s suggest that a SOR should be no more than 300 words, and should focus on what a senior
insurance manager is responsible for, rather than how they will deliver those responsibilities. The PRA
also suggests that in many cases, simply listing the relevant PRA Prescribed Responsibilities (see section
3.1.1) should be sufficient.
The FCA requires SOR forms with all new SIF applications. However, although SORs are required to be
maintained for all grandfathered SIFs, they are to be made available on request and do not need to be
submitted.
8. ACTIONS FOR MANAGING AGENTS
Managing agents should consider taking the following actions:





review governance arrangements (including Group arrangements, where relevant);
assign PRA SIMFs and FCA CIFs accordingly;
assign prescribed responsibilities to PRA SIMFs;
identify current approved persons who can be grandfathered and notify the PRA using Form K;
review relevant job descriptions/terms of reference, including:
o
o
o
o
o
job title;
regulatory approvals (if any);
prescribed responsibilities (if any);
applicable conduct rules;
reporting lines;
 create a Governance map;
 review governance processes, including:
o processes for reviewing and updating the governance map;
o process for reviewing role profiles;
o annual appraisal process;
 raise awareness of the reasonable expectations of regulators and the importance of consistent and
accurate record keeping.
9
9. TIMELINE
Date
1 January 2016
Description
 Managing agents must have governance maps in place.
 New SIMF applications to use updated Form A.
 Scope of responsibilities form must be submitted with
new SIMF applications.
8 February 2016
7 March 2016
7 September 2016
 Managing agents must have submitted grandfathering
notifications to the PRA and FCA (for SIF holders).
 New conduct rules will apply to PRA and FCA approved
persons.
 Managing agents must submit scope of responsibilities
form for grandfathered individuals to the PRA (latest
date).
 Managing Agents must submit a notification form in
respect of ‘transitional’ key function holders at 1
January 2016 (who are not grandfathering). These are
key function holders who do not need to be pre‐
approved by the PRA, but have to be notified for
assessment).
Forms
New Form A
(TBC)
SOR Form
Form K
SOR Form
Form M
10
APPENDIX 1
PRA Individual conduct standards – based on pages 17 to 21 of PRA SS35/15
Conduct standard
Description
1
You must act with
integrity
The PRA does not expect to have to describe what is meant by acting with integrity
2
You must act with due
skill, care and diligence
The PRA expects all individuals who are performing a key function to exercise their business skills with appropriate
levels of attention and care; and to provide proper and adequate explanations about the activities they are
undertaking, when requested by a senior manager or director of the firm or the group.
A person who is effectively running a firm or is responsible for another key function is a key function holder. A key
function holder may, but will not necessarily, perform a CF that is a PRA SIMF or an FCA CF. The PRA expects a key
function holder to understand the business for which they are responsible. Key function holders are unlikely to be
experts in all aspects of a complex financial services business. However, the PRA expects that they should understand
and inform themselves about the business sufficiently to understand the key risks relating to a firm’s insurance,
investment or other business activities.
The PRA expects a key function holder to require explanations from those who report to them, whenever they have
material concerns about the identification, measurement or control of risks borne by the firm. Such concerns could
for example arise in the following circumstances:



business is undertaken (or an investment made) that is expected to be unusually profitable (relative
to the risks expected by the firm);
the profits are particularly volatile; or
the business involves risks for the firm that are either beyond those reasonably anticipated in the
business plan, or beyond the firm’s normal risk tolerance limits.
Where those explanations are implausible or unsatisfactory, the PRA expects the key function holder to take
steps to test the veracity of those explanations.
3
You must be open and
co‐operative with the
FCA, the PRA
and other regulators
The PRA expects a person to report information to the regulators through the firm’s mechanisms for reporting
information to the regulators. Relevant factors in assessing whether a person has followed Insurance ‐ Conduct
Standard 3.3 include:





4
5
whether a person has provided information into such mechanisms in an appropriate manner;
whether the person has taken steps to influence a decision so as not to report to the regulator concerned;
whether the person has acted in a way intended to obstruct the reporting of information to the regulator
concerned;
where relevant to the person’s role, the way in which the person has operated, managed or overseen those
mechanisms; and
the way in which a person has responded to requests from a relevant regulator.
You must take
reasonable steps to
ensure that the business
of the firm for which you
are responsible is
controlled effectively
If the strategy of the business is to enter higher‐risk areas, then the degree of control and strength of monitoring
reasonably required within the business will be higher. In organising the business for which they are responsible, a key
function holder should bear this in mind.
You must take
reasonable steps to
ensure that the business
of the firm for which you
are responsible complies
with the relevant
requirements and
standards of the
regulatory system
The PRA expects a key function holder to take reasonable steps both to ensure the firm’s compliance with the
relevant requirements and standards of the regulatory system, and to ensure that all staff are aware of the need for
compliance. For this purpose, the PRA expects key function holders not merely to ensure that firms meet the letter of
the requirements, but also not to attempt to game them by engaging in creative compliance or regulatory arbitrage
designed to mask the riskiness of activities or business models. Rather, key function holders should maintain sight of
the overriding principles of safety and soundness and the protection of policyholders, and act accordingly.
The PRA expects the organisation of the business, and the responsibilities of those within it, to be clearly defined.
Reporting lines should be clear to staff. Where staff have dual reporting lines, there is a greater need to ensure that
the responsibility and accountability of each line manager is clearly set out and understood.
A key function holder need not personally put in place the systems of control in the business; whether they do this
will depend on their role and responsibilities. However, the PRA expects the key function holder to take reasonable
steps to ensure that the business has operating procedures and systems which include well‐defined steps for
complying with the detail of relevant requirements and standards of the regulatory system and for ensuring that the
business is run prudently. The nature and extent of the systems of control that are
required will depend upon the relevant requirements and standards of the regulatory system, and the nature, scale
and complexity of the business.
1
6
You must take
reasonable steps to
ensure that any
delegation of your
responsibilities is to an
appropriate person and
that you oversee the
discharge of the
delegated responsibility
effectively
The PRA does not expect a key function holder personally to manage the business on a day‐to‐day basis. The extent to
which this is done by the key function holder will depend on a number of factors, including the nature, scale and
complexity of the business and their position within it. The larger and more complex the business, the greater the
need for clear and effective delegation and reporting lines, which may involve documenting the scope of that
delegation and the reporting lines in writing. The PRA expects a key function holder to take reasonable steps to
ensure that systems are in place which result in issues being addressed at the appropriate level.
In accordance with this standard, the PRA believes that the authority for dealing with an issue or a part of the
business should only be delegated to an individual or individuals by a key function holder when they have reasonable
grounds for believing that the delegate has the necessary capacity, competence, knowledge, seniority or skill to deal
with the issue or to take authority for dealing with that part of the business.
Although a key function holder may delegate the resolution of an issue, or authority for dealing with a part of the
business, they cannot delegate their oversight responsibility. The PRA expects that person to maintain a suitable level
of understanding of the delegated activity, supervise and monitor the person to whom the responsibility has been
delegated, and ensure that they receive reports on delegated matters and question those reports where appropriate.
Where an issue raises significant concerns, the PRA expects a key function holder to act clearly and decisively.
7
You must disclose
appropriately any
information of which the
FCA or PRA would
reasonably expect notice
Number 3 above relates primarily to responses from individuals to requests from a relevant regulator and to an
individual’s involvement in a firm’s mechanisms for reporting to a regulator. However, this Conduct Standard imposes
a greater duty on key function holders to disclose any information the relevant regulator would reasonably expect.
This includes making a disclosure in the absence of any request or enquiry from the relevant regulator. By virtue of
their position, the PRA expects that a key function holder is likely both to have access to greater amounts of
information of potential regulatory importance and to have the expertise to recognise when this may be something of
which the PRA or FCA would reasonably expect notice.
The PRA does not expect a key function holder to disclose information which the person knows that the firm or
another senior manager has already disclosed to the PRA, for example through having seen a copy of the relevant
communication.
The PRA expects that, in disclosing appropriately, the person will need to disclose:



8
When exercising your
sufficient information for the regulators to be able to understand the full implications of the matter
being disclosed;
in a timely manner; and
to an appropriate contact at the PRA or FCA (or both), which may include the firm’s usual
supervisory contact(s).
The PRA expects a key function holder to ensure that appropriate attention is given to the need to ensure that the
firm will continue to be able to provide the benefits that it has committed to provide for its policyholders. This is
2
responsibilities, you
must pay due regard to
the interests of current
and potential future
policyholders in ensuring
the provision by the firm
of an appropriate degree
of protection for their
insured benefits
likely to be achieved primarily through taking relevant actions, in line with the PRA’s Conduct Standards, to ensure
that the firm meets all the PRA’s Fundamental Rules 1and continues to meet the Threshold Conditions.
In particular, the PRA expects key function holders to exercise sound and prudent management over the areas of the
business for which they are responsible. This would be exemplified through ensuring the application of suitable due
diligence over any major transactions that are contemplated by the firm or group, and for which a key function holder
has a responsibility. Key function holders should also apply due care and attention in the appropriate management of
any conflicts of interest within a firm or group.
3
APPENDIX 2
Equivalent functions - based on pages 9 to 13 of PRA PS22/15.
Pre‐implementation PRA or FCA
Controlled Function
Director (CF1)
PRA SIMF
Chief Finance function (SIMF2)
Chief Risk function (SIMF4)
Head of Internal Audit function (SIMF5)
Chief Actuary function (SIMF20)
Chief Underwriting Officer function (SIMF22)
Underwriting Risk Oversight function (Lloyd’s) (SIMF23)
Group Entity Senior Insurance Manager function (SIMF7)
Non‐executive director (CF2)
Chairman (SIMF9)
Senior independent director (SIMF14)
Chair of the Risk Committee (SIMF10)
Chair of the Audit Committee (SIMF11)
Chair of the Remuneration Committee (SIMF12)
Group Entity Senior Insurance Manager function (SIMF7)
Chief executive (CF3)
Chief Executive function (SIMF1)
Director of unincorporated association
(CF5)
Chief Finance function (SIMF2)
Chief Risk function (SIMF4)
Head of Internal Audit function (SIMF5)
Group Entity Senior Insurance Manager function (SIMF7)
Chief Actuary function (SIMF20)
Chief Underwriting Officer function (SIMF22)
Chairman function (SIMF9)
Chair of the Risk Committee function (SIMF10)
Chair of the Audit Committee function (SIMF11)
Chair of the Remuneration Committee function (SIMF12)
Senior Independent Director function (SIMF14)
FCA Apportionment and oversight (CF8)
To be dis‐applied
FCA Function
FCA Director function (CF1) (see Note)
Chair of the nomination committee function (CF2a)
Chair of the with‐profits committee function
(CF2b) (see Note)
FCA Director of unincorporated association function
(CF5)
Chair of the nomination committee function
(CF2a)
Chair of the with‐profits committee function
(CF2b) (See Note)
FCA Compliance (CF10)
Compliance (CF10)
FCA CASS Operational Oversight (CF10a)
Cass Operational Oversight (CF10a)
4
FCA Money Laundering Reporting (CF11)
Money Laundering Reporting Officer (CF11)
PRA Actuarial function holder (CF12)
Chief Actuary function (SIMF20)
PRA With‐profits Actuary (CF12A)
With‐profits Actuary function (SIMF21)
PRA Lloyd’s Actuary (CF12B)
Chief Actuary function (SIMF20)
Underwriting Risk Oversight function (SIMF23)
PRA Systems and Controls (CF28)
Chief Finance function (SIMF2)
Chief Risk function (SIMF4)
Head of Internal Audit function(SIMF5)
FCA Significant Management (CF29)
Chief Underwriting Officer function (SIMF22)
Group Entity Senior Insurance Manager function (SIMF7)
Chief Actuary function (SIMF20)
Underwriting Risk Oversight function (Lloyd’s) (SIMF23)
FCA Customer function (CF30)
CF29s not otherwise approved by the PRA
Customer function (CF30)
5
APPENDIX 3
The table below, which is for illustration purposes only, sets out the new required functions, and how a fictitious organisation might approach the new regime.
Code
Controlled Function
Identified
person
Current role
Current approval
Equivalent
role?
New application or
Grandfathering
SIMF1
SIMF2
SIMF4
Chief Executive Officer
Chief Finance Officer
Chief Risk Officer
A
B
C
CF3
CF1
CF1
Yes
Yes
Yes
Grandfather
Grandfather
Grandfather
SIMF5
Head of Internal Audit
B
CF1
Yes
Grandfather
SIMF7
SIMF9*
Group Entity Senior Insurance Manager
Managing Director
Director of Finance
Head of Risk
Director of Finance (Internal Audit is
an outsourced function)
Not applicable
D
Chairman (NED)
CF2
Yes
Grandfather
SIMF10*
Chairman
Risk Committee
Chairman
Audit Committee
Chairman
Remuneration Committee
E
Chairman of Risk Committee (NED)
CF2
Yes
Grandfather
F
Chairman of Audit Committee (NED)
CF2
Yes
Grandfather
G
Chairman of Remuneration
Committee (NED)
CF2
Yes
Grandfather
Senior Independent Director
H
NED
CF2
No
Grandfather
Chief Actuary
Chief Underwriting Officer
I
J
Head of Actuarial
Director of Underwriting
None
CF1
N/A
Yes
New Application
Grandfather
CF1
Director
K
Head of Claims
None
N/A
New Application
(Key Function Holder)
CF2a*
Chair
Nominations Committee
Yes
Yes
Grandfather
(Key Function Holder)
PRA SIMF
SIMF11*
SIMF12*
SIMF14*
SIMF20
SIMF22
Chairman
FCA SIF
Not applicable – no Nominations
Committee
PRA KFH
Compliance
Compliance Function
L
Compliance Officer
6
APPENDIX 4
PRA expected responsibilities of NEDs in scope of the SIMR
The following is reproduced from page 26 of PRA SS35/15
SIMF
Expected Responsibility
Chairman (SIMF 9 )
 Chairing, and overseeing the performance of the role of, the governing body of a firm.
 Leading the development and monitoring effective implementation of policies and
procedures for the induction, training and professional development of all members of
the firm’s governing body,
 Overseeing the assessment of fitness and propriety of all NEDs; and
 Leading the development of the firm’s culture by the governing body as a whole.
Chair of the Risk Committee (SIMF 10 )
 Chairing, and overseeing the performance of the role of, the risk committee.
Chair of the Audit Committee (SIMF 11 )
 Chairing, and overseeing the performance of the role of, the audit committee.
Chair of the Remuneration Committee (SIMF 12)
 Chairing, and overseeing the performance of the role of, the remuneration
committee.
 Oversight of the development and implementation of the firm’s remuneration
policies and practices.
SID (SIMF 14 )
 Performing the role of a senior independent director, and having particular
responsibility for leading the assessment of the performance of the person
performing the Chairman function.
Any NED subject to pre‐approval
 Oversight of the independence, autonomy, and effectiveness of the firm’s policies and
procedures on whistleblowing including the procedures for protection of staff who raise
concerns from detrimental treatment.
7
CONTACT US
Steve Morrell
Senior Executive, Legal & Compliance
Company Secretary
Tel: 0207 3278372
Email: [email protected]