PRA consultation to promote diversity on boards of large insurers

The PRA consults on further amendments to the Senior Insurance Managers Regime (SIMR) including promoting diversity on boards.

The PRA's consultation paper entitled Strengthening accountability in banking and insurance: optimisations to the SIMR, and changes to SMR forms proposes changes to SIMR and also, to a lesser extent, the Senior Managers Regime (SMR).

SIMR is the PRA's regime for personal responsibility and accountability for insurers and mirrors, in part, the SMR, which is the regime for senior management accountability in banks. At present the FCA has in place a modified version of the old 'approved persons' regime for insurers, however this is due to change when the Senior Managers and Certification Regime (SM&CR), of which the SMR is one component, is extended to all authorised firms next year.  The 'optimisations' being proposed by the PRA to SIMR should be seen in the context of this very significant change to personal responsibility and accountability across financial services.

The most significant proposed amendments, which are focussed on SIMR, are contained within chapters 2 and 3 of the CP and include:

• Creating a new Chief Operations function (SIMF24)

• Creating a new Prescribed Responsibility for the firm's performance of outsourced operational functions and activities

• Creating a new Head of Key Business Area function (SIMF6)

• Requiring the Chairman and CEO function not to be held by a single individual at 'large firms'

• Requiring any Non-Executive Director oversight role, at a 'large firm', to not be performed by an executive within the relevant firm's wider group

• Requiring firm's to have in place a policy to consider a broad set of qualities and competencies when recruiting board members and to have a policy to promote diversity among board members.

A number of these proposals, such as the creation of the Head of Key Business Area function and Chief Operations function, will result in SIMR more closely resembling certain elements of the SMR. In the light of the proposed extension of the SM&CR it is unsurprising that there is some limited harmonisation between the two regimes overseen by the PRA.

The significance of these changes should not be lost either in the fact that they are badged as 'optimisations' nor in the noise that will surround the FCA's forthcoming consultation about the extension of the SM&CR.  These reflect substantial changes; for example, the new Prescribed Responsibility for outsourced functions and activities could have a significant impact where activities such as underwriting or claims handling have been outsourced.  Recent thematic reviews by the FCA show how significant a responsibility that will be.

Furthermore the new proposal relating to board-level diversity reflects a significant and encouraging step by the PRA to promote diversity by following the UK Corporate Governance Code.