SM&CR Roundtable Questions

Transcription

1 SM&CR Roundtable Questions Pollyanna Deane Felix Zimmermann Richard Sims Andrea Finn Laura Allen 27 September 2017

2 SMCR for insurers and insurance distributors 1. Different approaches SMCR for insurers is a continuation of SIMR, plus Solvency II and PRA guidance. SMCR for distributors is a new regime 2. Roundtable Chatham House Rule to discuss the various responses that we might want to make 3. Key questions for discussion by both sectors here 4. Key questions for insurers 5. Key questions for distributors 1 /

3 Key questions for both insurers and distributors 1. Prescribed responsibilities are they useful? Too focussed on Compliance? 2. Who are going to be certification staff is the proposed list acceptable? 3. Do you want to see the publication of your certification staff? 4. Duty of responsibility 5. Conduct rules only cover financial services and not all activities undertaken by the firm (unlike the banks) Do you think this is right? 6. Regulatory references how will this affect your business? 7. What will be the impact of the SM&CR on the current D&O market? Do you think that D&O insurance will change? 2 /

4 List of prescribed responsibilities for insurers Core Regulator A Performance by the firm of its obligations under the Senior Managers Regime, including implementation Shared and oversight B Performance by the firm of its obligations under the Certification Regime Shared B1 Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules FCA C Compliance with the rules relating to the firm s Responsibilities Map Shared D Responsibility for the firm s policies and procedures for countering the risk that the firm might be used to further financial crime F Induction, training and professional development of all members of the firm s governing body Shared G Induction, training and professional development of all persons performing designated senior Shared management functions on behalf of the firm other than members of the governing body and key function holders H Overseeing the adoption of the firm s culture PRA I Leading the development of the firm s culture by the governing body as a whole PRA J-2 Oversight of Internal Audit (IA) at firms that outsource their IA to a third party Shared M-1 Remuneration policies and practices PRA N Whistleblowing Shared O Management of the allocation and maintenance of the firm s capital and liquidity PRA Q Production and integrity of the firm s financials and its regulatory reporting PRA T Developing and maintaining the firm s business model PRA T-2 Performance of the firm s Own Risk and Solvency Assessment (ORSA) PRA U Insurance Fitness and Propriety PRA X Outsourced operational functions including systems and technology PRA Z Responsibility for the firm s compliance with CASS (if applicable) FCA FCA 3 /

5 List of prescribed responsibilities for distributors Core 1 Performance by the firm of its obligations under the Senior Managers Regime, including implementation and oversight 2 Performance by the firm of its obligations under the Certification Regime 3 Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules 4 Responsibility for the firm s policies and procedures for countering the risk that the firm might be used to further financial crime 5 Responsibility for the firm s compliance with CASS (if applicable) 6 Responsibility for ensuring the governing body is informed of its legal and regulatory obligations 7 Responsibility for an AFM s value for money assessments, independent director representation and acting in investors best interests *Added as per the FCA s Asset Management Market Study Enhanced 8 Compliance with the rules relating to the firm s Responsibilities Map 9 Safeguarding and overseeing the independence and performance of the internal audit function 10 Safeguarding and overseeing the independence and performance of the compliance function 11 Safeguarding and overseeing the independence and performance of the risk function 12 If the firm outsources the internal audit function, taking reasonable steps to ensure that every person involved in the performance of the service is independent from the persons who perform external audit 13 Developing and maintaining the firm s business model 14 Managing the firm s internal stress tests and ensuring the accuracy and timeliness of information provided to the FCA for the purposes of stress testing 4 /

6 Certification Regime for insurers PRA applies to : Key function holders MRTs at a large firm and their managers Excludes SIMFs, NEDs or FCA controlled function holders and only relates to regulated activities FCA: Wider set of certification functions than PRA Significant management function (current CF29s) Material Risk Takers Line Managers of Certified People (e.g. Significant Management Certification Function) Current CF30s (i.e. customer-dealing function) Customer-facing roles with a required qualification (e.g. life insurance staff giving advice on long-term care) Proprietary traders (current CF29) CASS Oversight (current CF10a) Algorithmic trading (unlikely to apply to insurers) 5 /

7 Certification Regime for distributors Certification Regime Those who could cause significant harm, might include Significant management function (based on current CF29) Material Risk Takers Algorithmic trading Most former Approved Persons not covered by SMR Customer-facing roles with a required qualification Proprietary traders CASS Oversight Line Managers of Certified People Current CF30s (i.e. customer-dealing function) Conduct Rules Senior managers, certification staff and most other staff (other than limited ancillary staff) 6 /

8 Key questions for insurers 1. Are the Senior Management Functions correct should anyone else be included? 2. PRA proposes to encompass Solvency II firms, Non-Directive firms (NDFs), both large and small, run-off firms, ISPVs, Branches of EEA firms, Branches of non-eea firms this is pretty comprehensive. There is much emphasis on being proportionate - have they got the proportionality right? 3. Any issues for underwriters re: D&O Questions raised by the FCA for insurers at Appendix 1 No Questions arising from the PRA CP14/17 7 /

9 Senior management functions for insurers: PRA Regime Executive functions S(I)MF1 S(I)MF2 S(I)MF4 S(I)MF5 S(I)MF20 S(I)MF21 S(I)MF22 S(I)MF23 Oversight S(I)MF9 S(I)MF10 S(I)MF11 S(I)MF12 S(I)MF14 S(I)MF7 S(I)MF19 Chief Executive Chief Finance Chief Risk Head of Internal Audit Chief Actuary With-profits Actuary Chief Underwriting Officer Underwriting Risk Oversight Chairman Chair of Risk Committee Chair of Audit Committee Chair of Remuneration Committee Senior Independent Director Function Group Entity Management Function Head of Third Country Branch 8 /

10 Senior management functions for insurers: FCA Regime Governing functions SMF1 Chief executive CF3 SMF3 Executive director CF1 SMF27 Partner CF4 Governing functions: non-executive Existing FCA CF? SMF9 Chair Note most CF2s (NEDS) will no longer be approved Required functions SMF16 Compliance Oversight CF10 SMF17 MLRO CF11 SMF29 Limited scope function CF8 S(I)MF7 Group Entity Management Function S(I)MF19 Head of Third Country Branch Not ISPV SMF23b Conduct Risk Oversight (Lloyd's only) NEW SMF11 Chair of the with-profits committee CF2? SMF13 Chair of the nominations committee SMF24 Chief operations function NEW SMF18 Other overall responsibility CF29? 9 /

11 Key questions for distributors FCA only 1. Enhanced, Core or Limited Scope firms are these the right thresholds for Enhanced firms? 2. Are the Senior Management Functions correct should anyone else be included? 3. What about Material Risk Takers in brokers? Questions raised by FCA at Appendix 2 10 /

12 All FCA solo-regulated firms 1 Limited Scope 2 Core 3 Currently have limited application of Approved Person regime, including: Limited permission consumer credit firms Sole traders Authorised professional firms - non-mainstream regulated activities Oil market participants, service companies, energy market participants Insurance intermediaries whose principal business is not insurance intermediation and who only have permission to carry on insurance mediation activity in relation to non-investment insurance contracts Internally managed AIFs All other FCA solo-regulated firms Enhanced Significant IFPRU CASS Large Firm AUM 50 billion or more Total intermediary regulated business revenue of 35 million or more Annual regulated revenue generated by consumer credit lending of 100 million or more Mortgage lender with or more regulated mortgages outstanding 11 /

13 Senior manager functions for Distributors: Core Regime Governing functions Existing FCA CF? SMF1 Chief executive CF3 SMF3 Executive director CF1 SMF27 Partner CF4 Governing functions: non-executive SMF9 Chair Note most CF2s (NEDS) will no longer be approved Required functions SMF16 Compliance Oversight CF10 SMF17 MLRO CF11 SMF29 Limited scope function CF8 12 /

14 Senior manager functions for Distributors: Enhanced Regime Functions Existing FCA CF? SMF2 Chief finance function CF28? SMF4 SMF5 Chief risk function Head of internal audit SMF14 Senior independent director CF2? SMF12 SMF10 SMF11 SMF13 Chair of the remuneration committee Chair of the risk committee Chair of the audit committee Chair of the nominations committee SMF7 Group entity senior manager function CF29? SMF24 Chief operations function NEW SMF18 Other overall responsibility CF29? 13 /

15 Appendix 1 14 /

16 SMCR for insurers - list of questions 1. Does the proposed list of FCA Senior Managers cover the appropriate rules, i.e. the most senior decision makers within a firm? 2. Are there any other roles that the FCA should consider specifying as SMFs? 3. Are there any proposed Senior Managers that the FCA should consider excluding? 4. Do you agree with our proposal to introduce a Conduct Risk Oversight Officer ( CROO ) for Lloyd s? 5. Do you agree with the proposed Overall Responsibility SMF? 6. Do you agree with our proposal to extend the scope and definition of SMF 16 to cover all FCA requirements? 7. Do you agree with our proposal to extend the Chair of the With-Profits Committee to cover any person(s) performing the with-profits advisory arrangement? 15 /

17 8. Do you agree with our proposal to extend the 12 week role to apply to responsibilities under the Overall Responsibility requirement? If not, please explain why. 9. Do you agree with our approach to Prescribed Responsibilities and our proposed list of PRs? 10. Do you agree with our approach to dividing and sharing Prescribed Responsibilities? 11. Do you agree with our proposals on Statements of Responsibilities? 12. Do you agree with our proposal to require firms to maintain, produce and, where relevant, submit Responsibilities Maps? 13. Do you agree with our proposal to apply handover requirements to Solvency II firms and large NDFs? If not, please explain why. 14. Do you agree with our proposals for small NDFs? 15. Do you agree with our proposals for small run-off firms? 16 /

18 16. Do you agree with the functions we have proposed making Certification Functions? 17. Are there any other functions that we should make a Certification Function? 18. Do you think the identity of people performing Certification Functions should be made public by firms? If so, which Certification Functions should be made public? 19. Do you agree with our proposed territorial limitation for the Certification Regime? If not, please explain why. 20. Do you agree with the approach we have proposed to allocating CASS responsibilities? If not, please explain why. 21. Do you agree with our proposed approach to rules and guidance on fit and proper tests? If not, please explain why. 22. Do you agree with our proposed requirements on criminal record checks? If not, please explain why. 17 /

19 18 / 23. Do you agree with our proposals to extend the requirement for regulative references to all insurers and to cover Certified Persons? If not, why not? 24. Do you agree with our proposal to apply the Conduct Rules to all employees, except ancillary staff? If not, why not? 25. Do you agree with our proposed scope of the Conduct Rules to Financial Services Activities whether regulated or unregulated? If not, why not? 26. Do you agree with our proposals about notifications under the Conduct Rules? If not, please explain why. 27. Do you agree with our proposal to link notification requirements for disciplinary action to breaches of the Conduct Rules? 28. Do you agree with our proposed frequency of Conduct Rules notifications, if not please explain why. 29. Do you agree with our proposals for applying the Senior Managers Regime to EEA branches? If not, why not? 30. Do you agree with our proposal to apply the Certification Regime to EEA branches with the adaptations set out? If not, why not?

20 31. Do you agree with our proposal to apply the Senior Managers Regime to non- EEA branches? If not, why not? 32. Do you agree with our proposed SMFs for non-eea branches? If not, why not? 33. Do you agree with our proposal to remove the Actuarial Conduct Function from the list of approved functions for non-eea branches? If not, why not? 34. Do you agree with our proposal to apply the Certification Regime to non-eea branches? If not, why not? 35. Do you agree with our proposed approach to Conduct Rules for non-eea branches? If not, why not? 36. Do you agree with our SM&CR proposals for ISPVs? If not, why not? 37. Do you agree with our proposal to apply the Conduct Rules to ISPVs as for Solvency II and large NDFs? If not, why not? 38. Do you agree with our approach and methodology to the cost benefit analysis? If not, please explain why. 19 /

21 Appendix 2 20 /

22 List of questions 1. Does the proposed list of Senior Managers in the core regime cover the appropriate roles, i.e. the most senior decision makers within a firm? 2. Are there any other roles that the FCA should consider specifying as SMFs? (You may wish to consider the list of proposed Senior Managers under the enhanced regime in section 8.16) 3. Are there any proposed Senior Managers that the FCA should consider excluding from the core regime? 4. Do you agree with our approach to Senior Management Functions for Limited Scope Firms? If not, please explain why. 5. Do you agree with our proposed list of Prescribed Responsibilities? If not, please explain why. 6. Do you agree with our proposed Prescribed Responsibility for AFMs as set out in CP17/18? If not, please explain why. 21 / 7. Do you agree with the functions we have proposed making Certification Functions? If not, please explain why.

23 8. Are there any other functions that we should make a Certification Function? 9. Do you think the identity of people performing Certification Functions should be made public by firms? If so, which Certification Functions should be made public? 10. Do you agree with our proposed territorial limitation for the Certification Regime? If not, please explain why. 11. Do you agree with the approach we have proposed to allocating CASS responsibilities? If not, please explain why. 12. Do you agree with our proposed approach to rules and guidance on the fit and proper test? If not, please explain why. 13. Do you agree with our proposed requirements on criminal record checks? If not, please explain why. 14. Do you agree with our proposed requirement of regulatory references? If not, please explain why. 22 /

24 15. Do you agree with our proposal to apply the Conduct Rules to financial services activities? 16. Do you agree with our proposal to apply the Conduct Rules to all employees who perform financial services, with the limited exclusions listed in section 7.14? 17. If you disagree, please explain why, including (where appropriate) cost implications. 18. Do you agree with our proposal to link notification requirements for disciplinary action to breaches of the Conduct Rules? 19. Do you agree with our proposed frequency of Conduct Rules notifications? If not, please explain why. 20. Do you agree with our proposed approach of using the objective criteria set out above to identify firms for the enhanced regime? If not, please explain why and propose alternative approaches. 23 /

25 23. Do you agree with our proposed approach to moving firms between core and enhanced? If not, please explain why. 24. Do you agree with our proposed Senior Management Functions for enhanced firms? 25. Do you agree that this will ensure the most senior people in firms are covered by the Senior Managers Regime, regardless of organisational structure? If not, please explain why. 26. Do you agree with our proposals for Prescribed Responsibilities in enhanced firms? If not, please explain why. 27. Do you agree with our proposal to apply the Overall Responsibility requirement to enhanced firms? If not, please explain why. 28. Do you agree with our proposal to apply Responsibilities Maps to enhanced firms? If not, please explain why. 24 /

26 31. Do you agree with our proposal to apply handover procedures to enhanced firms? If not, please explain why. 32. Do you agree with our proposals for Senior Managers in EEA Branches? 33.Do you agree with our proposals on the Certification Regime and Conduct Rules for EEA Branches? 34.Do you agree with our proposals for Senior Managers in non-eea branches? If you disagree, please explain why. 35.Do you agree with our proposals for Prescribed Responsibilities in non-eea branches? If you disagree, please explain why. 36.Do you agree with our proposals on the Certification Regime and Conduct Rules for non-eea Branches? 37.Do you agree with our proposal to introduce a new Prescribed Responsibility for the Conduct Rules that will also apply to banking firms? 25 /

27 38. Do you agree with our changes to the 12-week rule? If not, please explain why. 39. Do you agree with our approach to applying the partner function to banking firms? If not, please explain why. 40. Based on the summary above and the full analysis -extension senior-managerscertification-regime.pdf, do you agree with our approach and methodology for the cost-benefit analysis? If not, please explain why.if not, please explain why. 41. Based on the summary above and the full analysis - extension senior-managerscertification-regime.pdf, do you agree with our findings and conclusions for the cost-benefit analysis? If not, please explain why. 26 /

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