Compliance Officer for Insurance Brokers and MGAs

Welcome to another episode from SMF Capital, focusing on senior compliance appointments within FCA-regulated businesses.

Today we're looking at an increasingly common requirement: finding a Compliance Officer for an insurance broker or MGA, particularly where the business needs experienced regulatory oversight without necessarily employing a full-time Head of Compliance.

You can find the full SMF Capital guide here:

Compliance Officer for Insurance Brokers and MGAs

Why insurance experience matters

Insurance broking has its own regulatory requirements and risks.

A compliance officer working with an insurance broker may need experience across ICOBS, Consumer Duty, product governance, financial promotions, complaints, regulatory reporting, client money and appointed representative oversight.

That means general FCA compliance experience isn't always enough.

A candidate who has worked predominantly in banking, investments or another regulated sector may understand FCA regulation very well, but may not have the practical experience required to oversee an insurance broker.

For example, an insurance broker may need someone who understands demands and needs, suitability where advice is provided, customer communications, product governance and the practical application of Consumer Duty.

Client money can also be an important consideration where the broker operates under CASS 5 arrangements.

The SMF16 requirement

For many directly authorised insurance brokers, compliance oversight is an important senior management responsibility.

Where SMF16 Compliance Oversight applies, the function must be held by an individual approved by the FCA.

That doesn't necessarily mean employing a full-time compliance officer.

A smaller broker may only require an experienced compliance professional for a few days each month, while a larger broker or MGA may need substantially more resource.

The key is matching the compliance resource to the firm's size, complexity, permissions and risks.

Fractional compliance officers

A fractional compliance officer can be particularly useful for smaller insurance businesses.

Instead of employing a permanent Head of Compliance, the firm can appoint an experienced professional for perhaps two, three or four days a month.

The arrangement can then increase as the business grows.

This can work particularly well for:

• New insurance brokers applying for FCA authorisation
• Small directly authorised brokers
• Specialist commercial or personal lines brokers
• Growing insurance intermediaries
• Brokers with appointed representatives
• Businesses replacing an existing compliance officer
• MGAs requiring specialist regulatory expertise

The objective shouldn't simply be to find the cheapest solution.

The objective is to obtain sufficient senior compliance expertise to properly oversee the business.

Insurance brokers and Consumer Duty

Consumer Duty has increased the importance of effective compliance oversight.

An insurance broker needs to be able to demonstrate that customers receive good outcomes and that products and services are appropriate for the markets being served.

A compliance officer may therefore be involved in reviewing:

• Customer communications
• Product governance
• Fair value assessments
• Complaints
• Customer outcomes
• Monitoring programmes
• Management information
• Financial promotions

The compliance officer should be able to translate regulatory requirements into practical processes rather than simply producing policies that sit in a compliance folder.

Appointed representatives

Appointed representatives can add another layer of complexity.

Where a broker acts as principal, the compliance function may need to oversee AR relationships, monitoring, financial promotions, training, governance and ongoing regulatory risks.

That makes previous AR experience particularly valuable.

A compliance officer who has already dealt with principal and AR relationships can often identify problems much earlier than someone who has only worked within a simpler directly authorised business.

What about MGAs?

MGAs can have a different compliance profile from conventional insurance brokers.

Depending on their business model, they may have responsibilities involving delegated underwriting authority, product governance, claims arrangements, capacity providers and relationships with insurers or Lloyd's.

Consequently, an MGA may benefit from a compliance officer with direct experience of delegated authority and the insurance market.

This is one reason specialist recruitment can be useful.

Rather than searching for a generic compliance professional, the recruitment process can focus on people who have actually operated within the relevant part of the insurance sector.

Does the same person hold SMF16 and SMF17?

This depends on the firm's activities.

A general insurance broker may not have the same money-laundering obligations as a business involved in life or investment-related insurance.

However, where an MLRO is required, smaller firms can sometimes use the same individual for SMF16 Compliance Oversight and SMF17 Money Laundering Reporting Officer.

The important point is to assess the firm's actual activities, permissions and regulatory requirements rather than assuming that every insurance broker needs exactly the same structure.

How many days a month?

There is no standard number.

A small broker may need two or three days a month.

A growing firm with more customers, client money or appointed representatives may require substantially more time.

An MGA with complex delegated authority arrangements may need a regular weekly commitment.

Eventually, a larger organisation may need a permanent Head of Compliance supported by a compliance team.

A good compliance assessment should therefore consider the firm's current position as well as its growth plans.

What should you look for?

When recruiting a compliance officer for an insurance broker, some of the most useful areas to investigate include:

• Previous SMF16 experience
• Direct insurance broking experience
• ICOBS knowledge
• Consumer Duty
• Product governance
• CASS 5 where relevant
• Appointed representative oversight
• Financial promotions
• Complaints
• FCA authorisation experience
• Compliance monitoring
• Understanding of the firm's particular insurance products

Professional insurance qualifications can also be useful, but practical regulatory experience is equally important.

The candidate should also have sufficient capacity.

A fractional compliance officer supporting too many businesses may not have enough time to properly understand another firm's risks.

What happens if the compliance officer leaves?

Replacing an SMF16 can become urgent if a compliance officer resigns.

The business still needs appropriate compliance oversight while it searches for a permanent replacement.

An interim or fractional compliance officer can provide continuity during the recruitment process.

The 12-week rule can also be relevant when arranging temporary cover, subject to the circumstances and applicable FCA requirements.

This can be particularly valuable for smaller brokers that don't have a large internal compliance team capable of absorbing the responsibilities.

When should you move to a permanent hire?

A fractional model isn't necessarily a permanent solution.

As the broker grows, there may come a point where compliance volumes justify a full-time appointment.

Indicators can include:

• Rapid growth in customer numbers
• Increasing complaints
• More complex permissions
• Several appointed representatives
• Significant client money responsibilities
• New products or markets
• Increased FCA scrutiny
• A larger compliance monitoring programme

At that point, the business may recruit a permanent Head of Compliance while continuing to use specialist external support where appropriate.

How SMF Capital helps

SMF Capital starts by understanding the business rather than simply taking a job title.

We look at the firm's activities, permissions, customer base, client money arrangements, appointed representatives, regulatory risks and future plans.

That helps determine what level of compliance resource is actually required.

We can then identify candidates with relevant insurance broker or MGA experience, including fractional, interim, part-time and permanent compliance officers.

pliance professional.