The Senior Insurance Managers Regime ("SIMR") is high on the agenda for many insurance companies' Audit Committees, with directors looking for assurance on whether this key regulation has been successfully implemented and embedded.

From 7 March 2016, SIMR has been in full effect. Under the new regime, Solvency II firms are required to identify accountable individuals, allocate responsibilities clearly and adhere to new conduct standards and rules.

Impacted firms should now have identified their Senior Insurance Managers, Key Function Holders, and Key Function Performers and documented individual accountabilities in the Governance Map. In-scope individuals must also complete a Scope of Responsibilities ("SoR") form by 7 September 2016, with larger firms expected to complete this exercise sooner. The SoRs will list an individual's key responsibilities, including any PRA-prescribed responsibilities, together with a clear explanation in the event that responsibilities are shared.

Now that the regime is live, internal audit functions are actively planning their audits of SIMR for 2016. Listed below are key focus areas which are typically scoped into a post implementation internal audit:

  • Governance framework – an internal audit should review the Governance Map and the individual Scope of Responsibilities ("SoR") for alignment to the overarching governance framework in place. This is a useful opportunity to review the system of delegated authorities and the way in which these are cascaded throughout the organisation.
  • Reasonable steps – individuals captured by the regime should make sure they are able to demonstrate that they are taking reasonable steps to discharging their responsibilities. This may require increasing formalisation and recording of decision making, however, evidencing compliance with SIMR should not necessarily entail a wholesale change in working practices. We find that an internal audit can usefully pick up inconsistencies and share best practices in the way executives evidence their reasonable steps.
  • Employee life cycle – in ensuring that in-scope individuals are fit and proper, firms have found the changes to HR processes greater than anticipated. An internal audit can assess how SIMR requirements have been embedded in the employee life-cycle from recruitment and on-boarding to annual appraisal and departure.
  • Conduct Rules & Standards – Senior Insurance Managers, Key Function Holders and Key Function Performers should have been trained in the new Conduct Rules & Standards and how these apply to them. An internal audit should review the content, delivery and completeness of this training. In testing completeness, consideration should be given to whether new joiners continue to be trained appropriately following commencement. Firms should also be monitoring Conduct breaches. An internal audit should review the mechanisms in place to identify, assess and report on these, and the governance over decisions made in relation to breaches.

Our observations from SIMR audits already undertaken include the following key themes:

  • Some firms are still grappling with the allocation of business-as-usual responsibilities for maintenance of the regime now that the implementation phase has concluded;
  • While firms have prepared a significant amount of documentation for the grandfathering process, some firms are still considering the most effective way to document the underlying processes and are compiling a SIMF handbook.
  • The process of documenting SoRs has triggered a wider examination of role profiles, particularly in some firms where the accountable individuals had not examined these for some time.
  • As firms considered how to evidence reasonable steps, this has triggered enhancements to board disciplines in particular board training, NED appraisals and logging NED activity outside the boardroom.

In addition to any post-implementation audit work, Internal Audit functions should also be considering how SIMR could be woven into audits on an on-going basis. Some firms are taking the opportunity to test clarity of individual accountabilities as part of each audit in their plan with the objective of thematically assessing the degree to which SIMR is embedded.

The work of internal audit is critical in providing directors and executives, reassurance and insight into how the organisation embraces the principles of robust governance, individual accountability and good conduct.

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