What were we asked?
UKGI was approached by a general insurance intermediary looking for compliance support around the appointment of a new Senior Manager following the retirement of the incumbent role holder. The focus was on ensuring the firm was continuing to act in accordance with the Senior Managers and Certification Regime (SM&CR) which came into effect at the end of 2019.
The firm had identified a suitable candidate and was initially looking to UKGI to help provide support to the firm with its application to the FCA for the candidate to undertake the designated Senior Manager function (SMF). Following on from this, the client took the opportunity to benefit from an expert external review of its SM&CR arrangements, to reassure itself that its governance structure was appropriate to its business and that its Senior Managers were aware of their responsibilities.
What did we do?
In terms of the new Senior Manager, UKGI’s consultants made sure that the firm had conducted all the necessary regulatory due diligence checks, which would assist the FCA’s case officer when they came to assess the application. This included obtaining and verifying employment references, undertaking criminal records and background checks, carrying out an assessment of the candidate’s fitness and propriety, and ensuring the correct FCA-prescribed senior management responsibilities had been assigned. Our consultants then guided and supported the firm through the process of compiling and submitting the application to the FCA along with all the necessary supporting documentation, including the job description and a copy of the candidate’s CV. We also assisted with preparing responses to the case officer’s queries. The new Senior Manager was subsequently approved by the FCA and was able to take up the role.
As with any other engagement of this type, we had begun by taking the time to gain a full understanding of the client’s operations and the associated challenges and opportunities – with particular reference, clearly, to SM&CR and ensuring that the firm’s governance structure was set up correctly. We checked that the management team understood the SM&CR and that there was evidence which showed that the firm was aware of the prescribed responsibilities which the FCA has specifically defined, placing personal accountability on individuals.
We undertook a review of all the SMF role holders and their associated Statements of Responsibility, to make sure their prescribed responsibilities had been identified and were listed in their job descriptions. We also checked whether the distribution of these responsibilities was appropriate to the roles being performed and the operational structure of the business. Where any changes were identified, we ensured these were communicated to the FCA via the Connect portal.
What did we find, and how did we help?
A firm’s approach to the SM&CR needs to be closely interlinked with its HR function, as the firm will need to ensure compliance with the Conduct Rules. We checked that the firm had effective procedures in place for identifying, investigating, and addressing any breaches of the Conduct Rules (including those which apply to staff who are not subject to the SM&CR regime), and we worked with the HR team to ensure that these rules were embedded consistently throughout the firm, in line with the requirements of SM&CR and the firm’s Training and Competence Scheme.
We advised the firm that the Conduct Rules fell into two “Tiers” – Tier 1 (Individual Conduct Rules for staff who were not Senior Managers) and Tier 2 (Senior Manager Conduct Rules for SMF role holders). A key concern here was the extent to which training had been made relevant and appropriate to the firm’s employees’ day-to-day roles – something about which the FCA is particularly interested in. We looked at how the firm had determined the type of training its staff should undergo. We made some suggestions on how to improve their record keeping around the training staff were completing, such that staff were able to maintain their CPD records in line with the FCA’s expectations, and so the firm could produce them upon request.
Our consultants identified some concerns around how the firm was assessing the ongoing fitness and propriety of its Senior Managers. While its Senior Managers were required to sign an annual attestation of fitness and propriety, we recommended that this attestation was reviewed and validated by the HR Manager, to provide independent confirmation that the SMF role holder was “fit and proper” to continue to perform that function. We also recommended that the firm had procedures to record any breaches of the Conduct Rules by non SMF role holders, where staff were required to adhere to these rules as part of their role. Such breaches are reportable to the FCA on an annual basis, given the degree of harm which could potentially be posed to customers.
We also reviewed the firm’s arrangements for delegating responsibilities between Senior Managers and the need to put appropriate handover procedures in place to allow for times when one Senior Manager might have to pick up aspects of a colleague’s SMF responsibilities – for example, during an unexpected period of absence, or (as was the case) an existing Senior Manager leaving the business. To prevent a risk of harm arising in such circumstances, it is vital that the individual filling in or taking over the role understands exactly what responsibilities their absent colleague’s role entails and the key issues they need to deal with.
We were therefore able to help the client recognise where more could be done in terms of embedding the requirements of SM&CR, not just in its policies and procedures, but in the overall culture of the firm. This included emphasising the need to include SM&CR in the ongoing board-level agenda and to address any SM&CR related concerns in conjunction with its HR policies and procedures. This was particularly relevant to help the firm to embed a culture where staff felt safe and empowered to report any concerns they may have. It also allows the firm’s HR team to investigate and follow up any Conduct Rule breaches so that the firm can report any issues to the FCA as required.
What was the outcome?
Following this extensive process of review and consultation, we collated our findings in a report and set out a comprehensive and pragmatic action plan that enabled the firm to strengthen the effectiveness of its governance arrangements around SM&CR. On the basis of our report and recommendations, the client subsequently commissioned UKGI to deliver a programme of bespoke on-site training to ensure staff in SMF and other roles properly understood what SM&CR requires, how the Conduct Rules applied specifically to them in their daily roles, and what implications their behaviour and interactions could have for the firm and its customers.
Ultimately our involvement provided the client with the opportunity to strengthen its business by bringing its culture more fully in line with SM&CR and ensuring it had the policies, procedures and training provision in place to ensure its ongoing compliance with the regime.
We can help!
If you need any assistance in reviewing your SM&CR arrangements, how they align with your people processes and your training, and with embedding the right culture across your business, get in touch – info@ukgigroup.com, 01925 765777 or our Contact Us page.