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Cert CII IF1 > 11. Regulatory and Legal Requirements > Flashcards

11. Regulatory and Legal Requirements Flashcards

1
Q

What is the purpose of compulsory insurance?

A

Compensate those who are injured or suffer loss through the fault of others

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2
Q

What insurance is compulsory for private individuals?

A

Motor
Public liability for ownership of wild animals / dangerous dogs

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3
Q

What insurance is compulsory for professions and businesses?

A

Motor
Employers Liability
Public liability or professional indemnity for certain professions
Marine pollution liability for operators of nuclear reactors

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4
Q

Describe compulsory motor insurance

A

Road Traffic Act 1988 - use of vehicle on public road must have insurance covering third party property damage and third party bodily injury or death

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5
Q

Describe compulsory employers liability insurance

A

Employers Liability (Compulsory Insurance) Act 1969 - must have insurance for liability to pay compensation to employees who sustain bodily injury or disease, arising from course of employment
List of exemptions including family members

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6
Q

Describe compulsory public liability insurance

A

Riding Establishments Act 1970 - all proprietors of riders must have PL insurance for claims arising from use of insured’s horses

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7
Q

Describe compulsory dangerous animals insurance

A

Compulsory for private individuals who own dangerous wild animals or dogs
Local authority issues licence and have to be satisfied with the insurance

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8
Q

Describe compulsory professional indemnity insurance

A

Solicitors (Amendment Act 1974 - must hold PI for claims of financial loss suffered as a result of solicitors professional negligence
Insurance intermediaries must have too
Minimum level £1.25m for single claim or £1.85m or 10% annual income up to £30m for aggregate losses

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9
Q

What is the Consumer Rights Act 2015?

A

Consolidates and clarifies existing consumer legislation on unfair contract terms

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10
Q

What does the Consumer Rights Act 2015 do?

A
  • Ensures terms uses in contracts and notices will only be binding if fair
  • Sets our factors for ‘fairness test’
  • Clarifies that to avoid be considered for fairness, price or subject matter must be transparent (expressed plain and intelligible language that is legible) and prominent (brought to attention)
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11
Q

What is the definition of unfair terms in the Consumer Rights Act 2015?

A

Those that put consumer at a disadvantage by limiting consumer’s rights or disproportionately increasing obligations

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12
Q

What terms might be considered unfair (grey list)?

A
  • Exclude or hinger right to take legal action or remedy
  • Enable trader to alter terms unilaterally
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13
Q

What new terms did the Consumer Rights Act 2015 put on the grey list?

A
  • Disproportionately high charges when consumer cancels
  • Enables determine characteristics of subject matter after conclusion of contract
  • Determine price after bound
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14
Q

What is privity of contract?

A

Person can only enforce contract if they are part to it

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15
Q

What does the Contracts Act 1999 do?

A

Reforms privity of contract and sets out circumstances where TP has right to enforce a contract (express provision or expressly identified)

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16
Q

What is the Prudential Regulation Authority?

A

Part of the bank of England and responsible for stability and resolvability of systematically important financial institutions

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17
Q

What is the Financial Conduct Authority?

A

Responsible for conduct of business and market issues for all firms and prudential regulation of small firms

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18
Q

What is the Financial Policy Committee (FPC)?

A

Within BoE and responsible for monitoring emerging risks to the UK financial system

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19
Q

What is the Prudential Regulation Committee (PRC)?

A

Also within BoE and operates alongside Monetary Policy Committee

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20
Q

What are the PRA primary objective?

A

Under Financial Services Act 2012 primary objective is to promote safety and soundness of PRA regulated persons

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21
Q

What are the two secondary objectives of the PRA?

A
  • Ensuring PRA authorised person avoid adverse effect on stability of UK financial system
  • Minimising adverse effect of failure of PRA authorised person
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22
Q

What is the definition of threshold conditions?

A

Minimum requirements firms must meet to be permitted to carry on regulated activities

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23
Q

What are the threshold conditions?

A
  • Head office (mid and management) in UK
  • Business conducted in prudent manner and maintain appropriate resources
  • Fit and proper and appropriately staffed
  • Capable of being effectively supervised
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24
Q

What is the PRA’s judgement led regulation?

A

New risk assessment framework that looks at
- Potential impact of failing
- Macroeconomic and business risk context firm operates
- Mitigating factors

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25
Q

What is the PRA’s Proactive Intervention Framework?

A

Captures PRA judgement about proximity to failure
5 stages and as firm moves through them supervisory actions are reviewed accordingly

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26
Q

What are the FCA objectives?

A

Overarching strategic objective to porter and enhance confidence in UK financial system
Three operational objectives:
- Consumer protection
- Integrity
- Competition

27
Q

What is the FCA’s approach to regulation?

A

More proactive and intervenes earlier to prevent widespread harm
Makes sure firms compete by offering better service, value and products

28
Q

What is the FCA’s approach to supervision?

A

Flexible focus on bigger issues
Categorises firms into 2 types:
- Fixed portfolio includes large insurers, subject to firm/group specific supervision (pillar 1)
- Flexible portfolio, subject pillar 2 and 3

29
Q

What are the 3 pillars of the FCA Risk Framework?

A
  1. Firm systematic framework - assesses firms conduct risk and if interests of customers and market integrity are at the heart
  2. Event driven - supervisory activity in response to issues that have emerged
  3. Thematic issue or product supervision
30
Q

What are the 11 principles of business (PRIN)?

A
  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market conduct
  6. Customer’s interests
  7. Communications with clients
  8. Conflicts of interest
  9. Customers: relationships of trust
  10. Clients assets
  11. Relations with regulators
    PRA applies to 1-4, 8 and 11
31
Q

What is SYSC?

A

Senior management arrangements, systems and controls section of FCA handbook
Relate to PRA threshold conditions
- SM&CR
-PIDA

32
Q

What is SM&CR?

A

Senior Managers and Certification Regime
New regulatory framework for individual accountability, must:
- give statement of responsibilities to senior manager
- produce responsibilities map
- get senior managers pre-approved by regulators

33
Q

What are the 3 key pillars of SM&CR?

A
  1. Senior Managers Regime - senior management functions split into executive and non-executive
  2. Certification Regime - individuals not carrying out SMF but role capable causing harm
  3. Conduct rules - regulators apply to senior managers, certified persons or other employees
34
Q

What is the ‘fit and proper’ test?

A

Senior manager or certified person under SM&CR must be fit and proper, tested on
- honesty, integrity and reputation
- competence and capability
- financial soundness

35
Q

What is the Public Interest Disclosure Act 1998 (PIDA)?

A

Concerns whistleblowing - public allegation of firm’s concealed misconduct
Lists range of possible illegal or criminal activities know as protected disclosures

36
Q

What is PRA authorisation?

A

Any UK domiciled company wishing to transact insurance in EU must be authorised by PRA
PRA regularly monitors them

37
Q

What powers of intervention does the PRA have?

A

Various powers
eg restrict premium or withdraw authorisation

38
Q

Do intermediaries need to be authorised?

A

Any intermediary must be authorised or expect
Only exemption is appointed representative and principal must advise PRA

39
Q

What is Retail Mediation Activities Return?

A

Guidance notes produced by FCA for small firms
- Accounting info
- Details of PI insurance
- Confirmation continues to meet threshold conditions
- No. people giving advice, supervisors and those who have left
- No. ARs and monitoring
- Products sold and more specific info for critical illness insurance
- Income from regulated activities

40
Q

What are the 6 positive consumer outcomes?

A
  1. Consumers confident fair treatment is central to culture
  2. Products and services are designed to meet needs
  3. Clear info and kept informed before, during and after
  4. Advice is suitable and takes account of circumstances
  5. Products perform as led to expect
  6. No unreasonable post sale barriers
41
Q

What is the impact of PRA and FCA having measure and sanctions to enforce and discipline?

A

Maintain market confidence and deter financial crime

42
Q

What is public censure?

A

FCA considers firm failed to meet requirements may issue public statement of misconduct
May first give warning notice

43
Q

What financial penalties are issued by regulators?

A

FCA impose, considers:
- resource level of person
- Profit gained or loss avoided
- Conduct, disciplinary record and compliance history

44
Q

What offences can the FCA bring criminal prosecution?

A
  • regulated activity without authorisation
  • failing comply provisions about control over authorised persons
  • false or misleading info to auditor
  • misleading regulator
45
Q

What less formal remedies can regulators impose?

A

Injunctions, withdraw approval or authorisation

46
Q

What record keeping is required by regulators?

A

FCA requires reporting of certain info so can monitor
Completion of RMAR submitted into online system GABRIEL

47
Q

What training is required by regulators?

A

Insurance Distribution Directive - at least 15 hours of professional development or training per year

48
Q

What is ICOBS?

A

Insurance: Conduct of Business Sourcebook
Rulebook that applies specifically to sale and admin for general insurance

49
Q

What is chapter 1 of ICOBS?

A

Application of ICOBS rules - defines range of activities applies to including insurance mediation and managing agent

50
Q

What is chapter 2 of ICOBS?

A

General matters - different rules depending on category of consumer
Financial promotions must be clear, fair and not misleading

51
Q

What is chapter 3 of ICOBS?

A

Distance communications - protect customers who enter contract through distance sale, cooling off period

52
Q

What is chapter 4 of ICOBS?

A

Info about firm - disclose status and specific fees

53
Q

What is chapter 5 of ICOBS?

A

Identifying clients needs and advising - suitability of contract

54
Q

What is chapter 6 of ICOBS?

A

Product info - scope of cover provided, make informed decision
GAP - extra info

55
Q

What is chapter 7 of ICOBS?

A

Cancellation - doesn’t apply short term insurance, consumer 14 day cooling off period

56
Q

What is chapter 8 of ICOBS?

A

Claims handing - keep advised on progress, fair and prompt handling, not unreasonably reject and settle promptly

57
Q

What is capital adequacy?

A

Capital acts as buffer to absorb unexpected losses and also crucial to maintain confidence of creditors (meet claims)

58
Q

What is a solvency margin?

A

Amount by which assets must exceed liabilities

59
Q

What is Solvency II?

A

Jan 2016 - FSA introduced risk based approach to insurers capital requirement described as enhanced capital requirement (ECR)

60
Q

How is ECR calculated for a non life insurer?

A

Add together:
- Asset related requirement - prescribed % determined by each time of admissible asset eg loans and shares
- Insurance related requirement - prescribed % determined by each class and calculated separately for net written premium and technical reserves

61
Q

What is ECR designed to do?

A

Minimise risk of insurance company having insufficient funds to meet present and future claims

62
Q

What is pillar 1 of Solvency II?

A

Capital adequacy
Covers financial requirements and defines resource needed to be considered solvent
- Solvency capital requirement (SCR) = level of capital give 99.5% confidence assets can cover liabilities next 12 months
- Minimum capital requirement (MCR) = level of capital to give national supervisors 85% confidence assets can cover liabilities next 12 months
Fall below SCR will trigger ladder of intervention, fall below MCR have less time recover if not closure will occur
Calculate capital requirement using standard formula, specific parameters or internal models

63
Q

What is pillar 2 of Solvency II?

A

Systems of governance
Own Risk and Solvency Assessment
Set out processes and procedures used to identify, assess, monitor, manage and report short and long term risks
Enable determine level of funds

64
Q

What is pillar 3 of Solvency II?

A

Supervisory reporting
Public and regulatory reporting ensuring greater transparency and encourage market discipline
- Solvency and Financial Condition report (public)
- Regulator Supervisory report (private)

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