The regime is intended to increase individual accountability within the industry 

The SMCR (senior managers and certification regime) has been extended to all insurers regulated by the FCA and Prudential regulation Authority.

Yesterday marked a ”milestone” for insurers when the regulation came into force said the FCA, the regulator views it as a “key step to improve culture and governance in the sector.”

It now applies to all dual-regulated insurance and reinsurance firms and replaces the SIMR (senior insurance managers regime) and revised approved persons.

SMCR aims to increase individual accountability within the financial sector, and already applies to banking.


Carey Lynn, senior partner at JLT Specialty explained that following the global financial crisis, regulators found it difficult to pin any responsibility on individuals who were able to effectively hide behind “the corporate veil.”

She said: “As a result, the SMCR was introduced so that companies are required to be clear on which individual senior manager roles are responsible, so that if something goes wrong in that area then regulators are clear on which individual should be held responsible.

”This has now been extended to insurers. The SMCR also places an increased onus on companies to ‘self-report’ which will no doubt lead to increasing internal investigations by those companies prior to making a self-report”.

Lynn said that this is an increasingly global trend as we have also seen with the Yates Memo in the USA, and the recent introduction of BEAR (banking executive accountability regime) in Australia.

This added coverage effects insurers by:

  • Ensuring all individuals are covered under D&O (directors and officers liability insurance) by specifically referring to the SMCR
  • Applying pre-investigation cover triggers early enough
  • Considering the structure of the programme in light of increased potential for conflicts between company and individuals
  • Ensuring adequate limits while bearing in mind severable nature of the D&O polices
  • Enabling seamless cover between PI (professional indemnity) and D&O cover given nature of regulatory action could be ‘professional’ or ’managerial’

More than just compliance

But Louise Skinner, partner at global law firm, Morgan Lewis, said it is about “more than just compliance with the strict letter of the regulations – it is about culture.”

She said: “The rollout of SMCR will change the way many businesses in the financial services sector operate, requiring a number of significant (and often burdensome) changes to compliance and human resource functions.”

Skinner explained that the focus on culture makes SMCR implementation a “prime opportunity for regulated firms through the process to engage in a broader exercise of self-reflection, questioning” and whether they have a healthy culture.

“Against this backdrop, we are seeing an ever-increasing appetite from firms to conduct top-to-bottom culture audits to assess their people practices, behaviours and procedures,” she added.

Previously Chris Finney, partner at business law firm, Fox Williams pointed out that insurers see this as an “administrative burden” and, for small or medium sized insurers, it may be a lot of cost with little benefit.