Back To Insights

Less than 1% of intermediaries reported conduct rule breaches in first year of SM&CR

Nindy Mellett


PRESS RELEASE: Only 15 conduct rule breaches were reported by insurance brokers or intermediaries last year, according to new information released by the FCA in response to a freedom of information (FOI) request by Sicsic Advisory.

Over 6,000 solo-regulated insurance intermediaries must inform the FCA each year of any conduct breaches by certified staff under specific reporting requirements.

The FOI disclosure revealed that only ten firms reported breaches between 9 December 2019 and 31 August 2020, the first period of implementation. Those firms reported a total of ten individuals who had breached conduct rules, with the majority of breaches reported against integrity, followed by due skill, care and diligence.

Meanwhile the disclosure showed there were five reports on senior managers under separate reporting requirements.

Sicsic Advisory senior consultant Nindy Mellett says: “Fifteen reports from the entire GI intermediaries’ population feels very low and indicates that some firms may not have robust processes in place to capture and report conduct issues.”

“Firms may be worried that their reporting would be out of step with other firms who have similar issues but might not be reporting them as a breach. The reality is the FCA is more likely to step in and investigate firms which report a lower number of breaches than would be expected for an organisation of its size, and it will continue to focus on conduct if reporting remains this low.”

“This possible reporting gap we’ve spotted is very much a warning for firms to get serious about SM&CR. Now is the time to act.”

Culture change

Since 31 March 2021 the scope of SM&CR has been extended for solo-regulated firms to include conduct training and breach reporting for all employees.

“This is not just a case of a two-hour workshop or online course on SMCR for staff, and expecting the job to be done,” Nindy continues. “All intermediaries need to take real ownership of SM&CR and embed individual accountability into their culture.

“Getting the reporting right is part of that process. Firms need to be asking themselves if they’re confident that employees understand how conduct rules apply to them in their individual roles, why the rules are so important to the organisation, and what to do about conduct breaches they’re responsible for – or that they spot in the course of their work.

“Then firms should be asking themselves if they’re really confident they’re passing on those reports in line with regulatory expectations.”

SM&CR breach consequences

Based on the FOI data, there have been no appeals on the reported breaches so far.

Nindy points out that although that could mean firms are conducting robust investigations and all parties agree with the outcome, it could also be a clue that only the black and white cases are being processed.

“If a conduct breach is complicated,” she explains, “that doesn’t mean it should be brushed under the carpet. In fact, that’s exactly when the regulations come into their own. Firms needs transparent processes to manage these cases, and they need to be using the reporting mechanism correctly, and consistently.”

Also, while there is only one insurance broker or intermediary Senior Manager currently under formal investigation by the FCA, with the regime extending to cover nearly all staff, this is just the tip of the iceberg.

To conclude, Nindy observes: “We can expect more enforcement from the regulator as they underline their initial intent of making conduct rules the minimum behaviours standard across the industry.

“If firms aren’t getting this right now, the issues will be exacerbated now the conduct rules have been extended to cover nearly all employees.”

You can download the press release containing the FCA’s answers to our questions from here.