We could see a change in the culture of employees when the Senior Managers & Certification Regime comes in this December, but are companies ready? And is the change worth it?

The Senior Managers & Certification Regime (SMCR) has the potential to change the culture of employee behaviour, but it could prove to be too time-consuming and complicated.

That is the verdict of Chris Finney and Joanna Chatterton, partners at business law firm, Fox Williams.

The FCA says the regime is designed to “reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.”

It has already been rolled out to the banks and as of 10 December, it will be applicable to insurers and reinsurers.

As part of the regime, a (re)insurer will have to:

  • Categorise (or re-categorise) its people: taking them one at a time, is this person a Senior Management Function (SMF) holder; a Certification Function employee; a member of our Conduct Rules staff; or one of our ancillary staff? Almost everyone has a part to play
  • Allocate the prescribed responsibilities to its SMFs;
  • Give every SMF a duty of responsibility;
  • Agree a Statement of Responsibilities with every SMF; and lay everything out in a Responsibilities Map;
  • Train its SMFs and Certification Function holders on the Conduct Rules (this year);
  • Train almost everyone else on the Conduct Rules (next year);
  • Get itself into a position where it can certify every Certification Function holder, as a “fit and proper person”, from December 2019 – taking into account the fact that, if a person cannot be certified, he cannot perform his regulatory functions; and
  • Get itself into a position where it can ask for and give a regulatory reference, in a way that is rule compliant, without creating unnecessary legal risk.

Chatterton said that while most insurers are comfortable with the structure at senior manager level, there are areas where they might struggle.

She said: “We don’t think they have fully understood the implications around employee management and employee relations.


Joanna Chatterton

“When it comes to disciplinary processes, you will need to reflect that there has been misconduct or a lack of confidence somewhere, but also if it breaches the new conduct rules which are being introduced. So that adds another dimension to the decision you are making about your employees, their performance and their conduct within your business.”

Are they prepared?

It is a mixed bag of who is prepared and who isn’t according to Finney.

“The bigger insurers are, they have a team of people or one person making sure everything is ready. But those smaller entities are still a bit behind and need to get a move on.

“Insurance businesses are transactional, so they have generally been quite good when it comes to this, but when you apply the regime to people, it becomes anything but transactional. So they have to try and look at it in a different way than which they are used to.”

Changing the culture of employees

With the new way conduct and competence processes will be documented under the regime, Chatterton and Finney think that the behaviours and attitudes of employees will change.

“A lot of people move jobs after a very short amount of time these days,” Finney said. “Some only stay in a job for a year or two.


Chris Finney

“But with the new regime, and if they have been through a misconduct process, they might feel that they cannot move for a few more years because that misconduct process will now be available for a potential new employer to see.”

Chatterton rather worryingly explained how some companies in the banking sector had used the regime as a tool to discipline staff.

“We have seen companies use the threat of the regime and a bad reference as an employee management tool, which is really not what the regime was intended for.”

Will it make much of a difference?

Finney says that insurers see the new regime as “academic” and that there is a lot of work to build processes for not much of a difference in the way that they operate already.

He said: “Some insurers we speak to say ‘we are such a small organisation with few ins and outs, it is going to be very rare that we would need this. But we have to build all these processes and you don’t know if we are ever going to use them’.”

The Senior Managers & Certification Regime comes into enforcement on 10 December 2018 and will be regulated by the FCA.

Two major points

Finney felt that two major points needed highlighting. Firstly, that insurers see this as just an administrative burden and that it doesn’t materially affect what they do. They see it as a lot of change, from creating new processes and remodelling systems, for not much benefit. They believe their systems do a good enough job already.

The second is that many small and medium insurers say they have a small certification function employee population; a small senior manager function holder population, and staff turnover is low.

“So (again) there’s a lot of work to do to create the systems and controls they will need,” he said. “So that they can demonstrate that they can and will comply with the rules, even though the rules won’t apply very often, so the processes won’t be used very often either.

“For these insurers (and there are many of them), this is a lot of cost for little or no benefit; to solve a problem that doesn’t really exist in the insurance sector.

“Sure, there are some insurers where there’s a problem and the rules will make a difference; and there are some ‘rolling bad apples’ that will eventually be moved out of senior roles, or out of the industry altogether. But these rules ‘sheep dip’ every insurer and every senior person, to solve a problem that could be more effectively resolved by tackling the particular insurers and individuals that are creating risk.

“They’re also rules that were created to solve an alleged or perceived problem in the banking sector, that are now being applied to everyone which, from the insurance sector’s perspective, makes matters worse.

“So a lot of work and cost for a theoretical benefit; and wholly disproportionate for many too.”