Senior Managers Regime – are you protected?

The introduction of the Senior Managers Regime (SMR) to the banking sector earlier this year brought a great deal of concern to many in the industry. This is largely due to the fact that there was lots of confusion and mixed messages around what it actually meant, and what had to be done in order to comply.

On several occasions, I saw different law firms providing conflicting advice, which only exacerbated the situation.

The advice given by those in the insurance sector, unfortunately, followed in the same vein. Some brokers and insurers were saying that specific SMR policies were needed, whilst others said that any implications would be covered under a Directors & Officers Liability (D&O) policy.

Given that the legislation includes a lot of personal liability implications, people were understandably concerned.

So what is the answer?

It really all depends on what your D&O policy looks like. In theory, provided you have a comprehensive policy, then there should be no issues with SMR’s being covered.

Generally speaking, the definitions of insured persons are quite broad under D&O policies, and so would arguably already include those in an SMR function.

Similarly, if you have cover for Investigation Costs (that is costs associated with preparing for a non-standard regulatory investigation), then this would also take care of a lot of the concerns of those individuals.

However, policies do vary and so it is important to check what cover you have. Our preference would also be to use a policy wording where SMR functions are specified as being covered to avoid all doubt.

You should speak to your broker to obtain clarification about your own coverage, but some key points to look out for are as follows:

• What is the definition of an ‘Insured Person’? For instance, does the policy extend to include retired/past directors and officers? Does it note specific SMR functions? Are non-executive directors covered?
• What is the definition of a claim/loss/wrongful act?
• What law is the policy written in?
• Is there Investigation Costs cover and to what limit?

Other general things which you should consider on a D&O policy are the limit of indemnity and the excess, as well as the various extensions which should be available and the conditions.

Also, with the introduction of the Insurance Act 2015 which came into force in August of this year, the need to ensure that the correct and full information is disclosed is more important than ever. Given that a D&O policy covers a number of people, be sure that you have the right (and up-to-date) information and that this has been disclosed to your broker and insurer.

I have worked with a number of clients to ensure that their policies afford them adequate protection for the SMR and beyond, so please do contact me via email (eloise.ellis@larkinsurance.co.uk) or with a call if you wish to discuss further