Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to:

1. (1) a UK Solvency II firm;
2. (2) in accordance with Insurance General Application 3, the Society, as modified by 11;
3. (3) in accordance with Insurance General Application 3, managing agents, as modified by 11;
4. (4) a third country branch undertaking (other than a Swiss general insurer);
5. (5) a UK ISPV, in accordance with 12; and
6. (6) a third country insurance services provider.

1.2

In this Part, the following definitions shall apply:

Chair of the Governing Body function

has the meaning given in 4.1.

Chair of Audit Committee function

has the meaning given in 4.3.

Chair of Remuneration Committee function

has the meaning given in 4.4.

Chair of Risk Committee function

has the meaning given in 4.2.

Chief Actuary function

has the meaning given in 7.1.

Chief Executive function

has the meaning given in 3.1.

Chief Finance function

has the meaning given in 3.2.

Chief Operations function

has the meaning given in 3.7.

Chief Risk function

has the meaning given in 3.3.

Chief Underwriting Officer function

has the meaning given in 9.2.

Group Entity Senior Manager function

has the meaning given in 5.1.

group executive

has the meaning given in 13.4.

Head of Internal Audit function

has the meaning given in 3.4.

Head of Key Business Area function

has the meaning given in 3.5.

Head of small run-off firm function

has the meaning given in 6A.2.

Head of Third Country Branch function

has the meaning given in 6.2.

Senior Independent Director function

has the meaning given in 4.5.

Underwriting Risk Oversight function

has the meaning given in 10.2.

With-Profits Actuary function

has the meaning given in 8.2.

2.1

Each of the functions in 3 –10 is a controlled function and a PRA senior management function.

2.2

PRA senior management function holders must each be approved by the PRA to perform the applicable PRA senior management function.

2.3

1. (1) A firm (other than a third country branch undertaking, a firm that does not have an establishment in the UK or a small run-off firm) must ensure that one or more persons performs each of the following PRA senior management functions on its behalf:
1. (a) the Chief Executive function;
2. (b) the Chief Finance function; and
3. (c) the Chair of the Governing Body function.
2. (2) If a vacancy arises in respect of one or more of the PRA senior management functions set out in (1), a firm must ensure that it appoints a person to fill that vacancy as soon as practicable.

2.4

To the extent that:

1. (1) a firm appoints a person to perform a key function which, but for this rule, would be a PRA senior management function;
2. (2) the appointment is solely to provide cover for a PRA senior management function holder whose absence is:
1. (a) temporary; or
2. (b) reasonably unforeseen; and
3. (3) the appointment is for less than 12 weeks in a consecutive 12-month period,

the description of the applicable PRA senior management function does not relate to those activities of that person.

2.5

1. (1) If, in relation to a firm, a PRA senior management function holder also performs FCA activities, performance of the PRA senior management function will include the performance of those FCA activities, provided the following conditions are met:
1. (a) the PRA’s approval to perform that PRA senior management function has been granted and continues in force;
2. (b) at the time of approval being granted by the PRA, that person was not subject to an FCA approval to perform the particular FCA governing function;
3. (c) the firm made an FCA activities notification; and
4. (d) that person performs and is continuing to perform the FCA activities.
2. (2) If, in relation to a firm, a PRA senior management function holder has been performing FCA activities in the circumstances set out in (1), and that person:
1. (a) ceases to perform the PRA senior management function;
2. (b) within three months of ceasing performance, is approved to perform a new PRA senior management function at the firm; and
3. (c) continues to perform the FCA activities,
3. performance of the new PRA senior management function will include the performance of those FCA activities, provided the conditions in (1) (a) to (d) are met.

2.6

If a PRA senior management function holder to whom 2.5 applies ceases to perform a PRA senior management function but continues to perform the FCA activities, 2.5(1) will continue to apply in respect of the performance of the FCA activities until the earlier of:

1. (1) approval by the FCA in respect of the performance by that person of those FCA activities as an FCA governing function in relation to the firm; or
2. (2) three months from the time that the person ceased to perform that PRA senior management function.

2.6A

If a PRA approved person:

1. (1) (other than in the circumstances set out in 2.5 or 2.6) performs one or more FCA responsibilities;
2. (2) ceases to perform any PRA senior management function; and
3. (3) does not have an FCA approval to perform an FCA controlled function in relation to that firm,
4. the functions in (1) will continue to be part of the PRA senior management function that the person most recently performed for that firm until the earlier of:
1. (a) approval by the FCA in respect of the performance by that person of an FCA controlled function in relation to the firm; or
2. (b) three months from the time that the person ceased to perform that PRA senior management function.

2.7

If a firm that is not significant outsources its internal audit function to an external third party service provider (that is, a service provider outside the firm or the firm’s group), the firm is not required to have any person(s) approved to perform the Head of Internal Audit function.

2.8

1. (1) A firm (other than a UK ISPV) must take all reasonable steps to ensure that before a person begins to perform:
1. (a) a PRA senior management function; or
2. (b) new or revised responsibilities in performance of a PRA senior management function,
2. that person is provided with all of the information and materials that the person may reasonably expect in order to perform that PRA senior management function or those new or revised responsibilities effectively and in accordance with the regulatory system.
3. (2) A firm must:
1. (a) have a written policy to ensure compliance with (1), including in relation to the systems and controls it uses;
2. (b) ensure the policy under (a) is complied with; and
3. (c) maintain adequate records of the steps taken to comply with (1).

3.1

The Chief Executive function (SMF1) is the function of having responsibility, under the immediate authority of the governing body, alone or jointly with others, for carrying out the management of the conduct of the whole of the business (or relevant activities) of a firm.

3.2

The Chief Finance function (SMF2) is the function of having responsibility for the management of the financial resources of a firm and reporting to the governing body of a firm in relation to its financial affairs.

3.3

The Chief Risk function (SMF4) is the function of having responsibility for overall management of the risk management system specified in Conditions Governing Business 3.

3.4

The Head of Internal Audit function (SMF5) is the function of having responsibility for the management of the internal audit function specified in Conditions Governing Business 5.

3.5

The Head of Key Business Area function (SMF6) is the function of having responsibility for management of a business area or division of a firm (other than a third country branch undertaking) where:

1. (1) the relevant business area or division of the firm accounts for more than 20% of the firm’s gross revenue; and
2. (2) the person performing that function does not report to a person performing the Head of Key Business Area function in respect of that same business area or division of the firm; and
3. (3) either the gross total assets or the technical provisions of the relevant business area or division of the firm exceed £10 billion.

3.6

For the purposes of 3.5, the gross total assets and technical provisions of the business area or division of the firm and the percentage of the gross revenue of the firm shall be assessed on the basis of either:

1. (1) the assets, technical provisions and revenues for the business area or division and the firm for the firm’s financial year immediately preceding that in which the person is allocated with the specified responsibilities; or
2. (2) if the threshold amount is not met for that period, on the basis of the annual average amount assessed across a rolling period of five years, assessed by reference to the firm’s annual accounting date; and where the firm or the business area or division has been in existence for less than five years, the assessment will be made on the basis of the annual average amount for the period during which the firm or that business area or division has existed (calculated by reference to the firm’s annual accounting date).

3.7

The Chief Operations function (SMF24) is the function of having responsibility for the internal operations and technology of a firm.

4.1

The Chair of the Governing Body function (SMF9) is the function of having responsibility for chairing, and overseeing the performance of the governing body of a firm.

4.2

The Chair of Risk Committee function (SMF10) is the function of having responsibility for chairing, and overseeing the performance of any committee responsible for the oversight of the risk management system specified in Conditions Governing Business 3.

4.3

The Chair of Audit Committee function (SMF11) is the function of having responsibility for chairing and overseeing the performance of any committee responsible for the oversight of the internal audit function specified in Conditions Governing Business 5.

4.4

The Chair of Remuneration Committee function (SMF12) is the function of having responsibility for chairing and overseeing the performance of any committee responsible for the oversight of the design or implementation of the remuneration policies and practices of a firm.

4.5

The Senior Independent Director function (SMF14) is the function of performing the role of a senior independent director, and having particular responsibility for leading the assessment of performance of the person performing the Chair of the Governing Body function.

5.1

The Group Entity Senior Manager function (SMF7) is the function of having a significant influence on the management or conduct of one or more aspects of the affairs of a firm in relation to its regulated activities (other than in the course of the performance of another PRA senior management function) and which is performed by a person employed by, or an officer of:

1. (1) a parent undertaking or holding company of a firm; or
2. (2) another undertaking which is a member of the firm’s group.

6.1

This Chapter applies only to a firm that is a third country branch undertaking or a third country insurance services provider (other than a Swiss general insurer).

6.1A

1. (1) 6.2, 6.3, 6.4 and 6.5 shall not apply to a SRO firm.
2. (2) 6.6 and 6.7 apply only to a SRO firm.

6.2

The Head of Third Country Branch function (SMF19) is the function of having responsibility for:

1. (1) the conduct of all activities of the third country branch undertaking that are subject to the regulatory system; or
2. (2) the conduct of all activities of the third country insurance services provider that are subject to the regulatory system.

6.3

1. (1) A third country branch undertaking or a third country insurance services provider must have at least one person approved to perform the Head of Third Country Branch function.
2. (2) If a vacancy arises in respect of the Head of Third Country Branch function, a third country branch undertaking or a third country insurance services provider must ensure that it appoints a person to fill that vacancy as soon as possible.

6.4

A third country branch undertaking or a third country insurance services provider that transacts with-profits insurance business must have at least one person approved to perform the With-Profits Actuary function (SMF20a).

6.5

A third country branch undertaking or a third country insurance services provider is not required to have any person(s) approved to perform any of the other PRA senior management functions.

6.6

A SRO firm must ensure that at least one person performs the Head of Third Country Branch Function on its behalf and if a vacancy arises in respect of that function it must ensure that it appoints a person to fill the vacancy as soon as possible.

6.7

For the purposes of 6.6 the Head of Third Country Branch Function (SMF 19) is the function of having responsibility to oversee the orderly run-off of the firm's regulated activities in the UK.

6A.1

This Chapter applies only to a small run-off firm.

6A.2

The Head of small run-off firm function (SMF26) is the function of:

1. (1) having responsibility for the conduct of the regulated activities; or
2. (2) chairing the governing body

of a small run-off firm.

6A.3

1. (1) A small run-off firm must ensure that one or more persons performs the Head of small run-off firm function or the Chief Executive function on its behalf.
2. (2) A small run-off firm must ensure that there is a person appointed to the Head of small run-off firm function or the Chief Executive function who has ultimate responsibility for the conduct of the regulated activities of the small run-off firm.
3. (3) If a vacancy arises in respect of that aspect of the Head of small run-off firm function or the Chief Executive function referred to in (2) above, a small run-off firm must ensure that it appoints a person to fill that vacancy as soon as practicable.

6A.4

A small run-off firm must have at least one person approved to perform the Chief Finance function (SMF2).

6A.5

A small run-off firm that transacts with-profits insurance business must have at least one person approved to perform the With-Profits Actuary function (SMF20a).

6A.6

A small run-off firm is not required to have any person(s) approved to perform any of the other PRA senior management functions.

7.1

The Chief Actuary function (SMF20) is the function of having responsibility for the actuarial function specified in Conditions Governing Business 6.

8.1

This Chapter applies only to firms that carry on with-profits insurance business.

8.2

The With-Profits Actuary function (SMF20a) is the function of having responsibility for advising the governing body of a firm transacting with-profits insurance business on the exercise of discretion affecting part or all of that business, as described more fully in Actuaries 5.1.

9.1

This Chapter applies only to firms that carry on general insurance business and to managing agents.

9.2

The Chief Underwriting Officer function (SMF23) is the function of having responsibility, in respect of the firm’s general insurance business, for the underwriting decisions in respect of material insurance risks that:

1. (1) in relation to firms that carry on general insurance business, are borne by the firm; or
2. (2) in relation to managing agents, are borne by members.

10.1

This Chapter applies only to the Society.

10.2

The Underwriting Risk Oversight function (SMF23a) is the function of overseeing and influencing underwriting plans by managing agents in respect of risks borne by members.

11.1

This Part applies to the Society and managing agents separately.

12.1

This Chapter applies only to firms that are UK ISPVs.

12.2

The following PRA senior management functions do not apply to a UK ISPV:

1. (1) Chief Risk function (SMF4);
2. (2) Head of Internal Audit function (SMF5);
3. (2A) Head of Key Business Area function (SMF6);
4. (3) Chair of Risk Committee function (SMF10);
5. (4) Chair of Audit Committee function (SMF11);
6. (5) Chair of Remuneration Committee function (SMF12);
7. (6) Senior Independent Director function (SMF14);
8. (7) Head of Third Country Branch function (SMF19);
9. (8) With-Profits Actuary function (SMF20a);
10. (9) Chief Underwriting Officer function (SMF23); and
11. (10) Chief Operations function (SMF24).

13.1

This Chapter does not apply to a third country branch undertaking or to a firm that does not have an establishment in the UK.

13.2

A large firm must ensure that a person who performs the Chair of the Governing Body function on its behalf does not perform the Chief Executive function within the same firm.

13.3

A large firm that is a member of a group must ensure that a group executive does not perform any of the following functions in respect of the firm:

1. (1) the Chair of the Governing Body function (SMF9);
2. (2) the Chair of Risk Committee function (SMF10);
3. (3) the Chair of Audit Committee function (SMF11);
4. (4) the Chair of Remuneration Committee function (SMF12); or
5. (5) the Senior Independent Director function (SMF14).

13.4

A group executive means, in relation to a large firm, a person who is an officer or employee of and performs an executive function at:

1. (1) a parent undertaking or holding company of the large firm; or
2. (2) an undertaking which is a member of the same group as the large firm.