Check your insurance is ready for SMCR

From 9 December 2019 all Financial Conduct Authority solo-regulated firms authorised under the Financial Services Markets Act 2000 will need to comply with the Senior Managers and Certification Regime (SMCR) and firms should be stepping up their planning to be ready for the new requirements. The SMCR is currently operational for all dual-regulated firms but is due to be rolled out to the wider financial services industry in December 2019, replacing accountability rules under the current Approved Persons Regime.

Initial actions that firms should be taking are:

• Review regulatory guidance to determine whether the core, enhanced or limited scope regime applies.
• Analyse which SMCR requirements will be relevant. The core regime consists of three main elements: the Senior Managers Regime, the Certification Regime and the Conduct Rules.
• Allocate prescribed responsibilities, prepare draft statements of responsibilities for Senior Managers and assign Senior Management Functions (SMFs).
• Ensure that your insurances will extend to include all those holding SMFs as well as any employees defined as Certified Staff by the new regime

How does SMCR affect my insurance?

Some questions to consider are:

Are your policy limits sufficient?

If senior managers find themselves under prosecution or investigation, they will want to dispute any allegations against them to protect their reputation and would generally expect their employers to provide them with the necessary insurance to cover the costs of their defence. Your firm’s Directors’ & Officers’ Liability (D&O) policy may be able to pick up these costs.

However, the impact of the SMCR broadening the scope of accountable individuals is that your existing D&O insurance limit will be now be stretched over a larger group of individuals meaning that the coverage available per person will effectively be reduced. Also, each valid claim erodes the total limit available to other individuals for the remainder of the policy period. It’s therefore important to ensure the policy limit is sufficient to provide coverage for all individuals who require protection under the policy.

Are your Non Executive Directors protected?

SMCR will go beyond the current Approved Persons regime in that Non-Executive Directors holding an SMF will, for the first time, fall under the direct jurisdiction of the FCA. This should be a consideration for your D&O insurance to ensure you are offering sufficient protection..

Are your policy definitions broad enough?

SMCR will widen the net of those who can be held accountable for their actions by the FCA. Definitions within your D&O policy will need to be broad enough to include not only Directors, but also Senior Managers, Certification Regime Staff, Conduct Rules Staff and certain ancillary staff.

Are you protecting Retired Directors?

The FCA can carry out enforcement action for historic activities. It’s important to consider and accommodate retired directors’ actions whilst they were in active service; they could still be held personally accountable. 

What action has Protean taken?

We have developed our own proprietary policy wording, which takes into account ongoing legislative changes. With reference to SMCR, we have focussed on the following points:

Definitions of Directors & Officers

We have amended our definitions of ‘Directors & Officers’ to be as broad as possible to ensure coverage for those employees holding functions under both the Senior Managers regime and the Certification regime. The definition also includes Non-Executive directors and a range of other senior employees who may require cover for defence costs under the policy. 

Regulatory and Investigation cover

Our wording provides cover for Regulatory Investigations up to the full policy limit. The policy contains a broad definition to account for pre-investigation costs, investigation costs and regulatory crisis costs.

Ring-Fenced Limits for Non-Executive Directors

Non-executive directors will have access to their own ring-fenced limit which can be called upon in the event of a claim, in cases where the purchased policy limit has already been exhausted by other claims during the policy period.

Extended Reporting Period for Retired Persons

Protean Risk’s wording has an extended reporting period for retired directors meaning their actions whilst acting as a director will continue to be covered even after they have left the businesses.

Speak to us

It’s important to remember that directors and officers face unlimited personal liability for their actions whilst running a company and this personal liability puts your personal assets at risk. The best way to ensure you have adequate protection in place is to speak to a member of the team at Protean Risk who will be able to evaluate any potential gaps in your existing D&O coverage and recommend any areas of improvement. 

Visit the FCA’s Senior Managers & Certification Regime for more information, including the new conduct rules and who it applies to: 

FCA SM&CR   Download our D&O Guide    Get in touch