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Clifford Chance

Regulatory Investigations and Financial Crime Insights

Senior Manager Delegation – some wise words from a US President

During an interview with Fortune magazine in 1986, Ronald Reagan, the 40th President of the United States, said: "I believe that you surround yourself with the best people you can find, delegate authority and don't interfere as long as the policy you've decided upon is being carried out."

Delegation of responsibilities has taken on new significance for insurance firms since the implementation of the Senior Managers Regime. For the first time, senior managers have an express obligation under the conduct rules (Senior Manager Conduct Rule 3) to take reasonable steps when delegating responsibilities and providing oversight of them. The promotion of delegation to be the subject of a specific conduct rule demonstrates the importance placed on effective delegation by the FCA. So how do you, as a senior manager, meet these expectations?

1. Put in place documentation that demonstrates what has been delegated and to whom - Management Responsibilities Maps (where required), Statements of Responsibilities and organisational charts that record the senior manager's responsibilities. Documentation is also needed that tracks how the senior manager's responsibilities have been delegated. There are various ways of doing this, including job descriptions for direct reports and delegation matrices.

2. Make reality reflect aspiration. Ensure that individuals are aware what has been delegated to them and that reality reflects what is in the documents.

3. Select people with the right knowledge and skills. Delegating to people who do not have these or sufficient time to perform the role creates risk for them, the senior manager and the firm.

4. Set clear expectations, both in terms of the delegate's role, but also what needs to be escalated to you and what management information you require.

5. Provide active oversight. The regulators are keen on the term "constructive challenge", which sums up the expectations of senior managers' day-to-day interaction with their reports.

6. Retain evidence – for example, emails, minutes, notebooks, 1-2-1 standing agendas. There is no reverse burden on senior managers to demonstrate they have done the right thing. However, when things have gone wrong, the regulators will expect to see evidence of appropriate senior management oversight.

Delegation is a multi-faceted exercise. It requires the right building blocks to be put in place, but it also needs active, ongoing engagement from the senior manager. If any one aspect of Ronald Reagan's statement is not respected - the right people, clear instructions, and ongoing oversight - problems can arise.

Having started with a quote, it seems fitting to end with one. Shortly after SIMR was implemented, Mark Steward, the FCA's Head of Enforcement, gave a speech in which he described what he thought a person exercising reasonable steps looks like. The question is, when you're delegating, does this sound familiar? "It has been said that a person who takes reasonable steps is one who does not exhibit a negligent or reprehensible state of mind, who is conscientious, exhibiting, through diligence, a keen and watchful eye on his or her field of responsibility, observing, asking questions and so informed and informing, being vigilant, deciding, guiding and monitoring, oversighting, delegating when safe to do so to those who are well-placed, and only acting beyond expertise and experience with competent expert advice."

This article first appeared in Insurance Day