8A1 Law and regulation Flashcards
PRA abbreviation
Prudential Regulation AUTHORITY
What happens if firms breach rules?
PRA has the power to remove this authorisation and apply a range of other penalties.
UK regulatory structure split
- Financial Policy Committee
- Prudential Regulation Authority
- Financial Conduct Authority
Financial Policy Committee
Within the bank of England, responsible for macro-prudential regulation and watching emerging risks to the UK’s financial system.
Prudential Regulation Authority
Part of the Bank of England, which is
responsible for the micro-prudential regulation of firms (e.g., banks and insurers) – it will not seek to prevent all failures, but will ensure they fail without bringing down entire financial system
Financial Conduct Authority
Responsible for conduct of business regulation across FS industry and prudential regulation of small firms (e.g., IFAs and brokers)
How can intermediaries be regulated?
- Directly by FCA
- Become an appointed rep of an authorised firm (principal)
Stages of intermediary authroisation
- Making an application to the FCA to become authorised
- Assessment by FCA
- Authorisation
Strategic objective of the FCA
Protect and enhance confidence in UK financial system
FCA operational objectives
- Securing appropriate degree of protection for consumers
- Promoting effective competition
- Protecting and enhancing integrity of financial system
Where can you find the Principles of Businesses (PRIN)?
The FCA handbook
How many principles are in PRIN?
11
SM&CR abbreviation
Senior Managers and Certification Regime
What are the three key elements of SM&CR?
- Conduct rules
- Senior Managers Regime
- Certification Regime
Conduct rules (SM&CR) definition?
Minimum standards for behaviour in FS – applies to almost all employees who carry out FS activities, or
linked.
Who do conduct rules apply to?
Some Conduct Rules apply to all employees, while others only apply to senior managers.
What is the Senior Managers Regime
Every senior manager must have a ‘Statement of
Responsibilities’ that clearly says what they are responsible and accountable for
What is the certification regime?
Applies to employees with certification functions
What are certification functions?
Employees whose role means it’s possible to cause significant harm to the firm, customers or market
How often must certification functions be checked?
Firms must check and certify that employees are fit and proper to perform their role at least once a year
ICOBS abbreviation
Insurance: Conduct of Business Sourcebook
What are ICOBs?
FCA’s detailed rules governing firms and individuals working in the general insurance market
Why is PMI not considered a protection insurance?
- Relatively few complaints
- Little consumer disadvantage
Which insurances do ICOBs cover?
Protection (IC, IP and PPI)
Where are ICOBS contained
In the FCA handbook
Can the FCA change rules in the Handbook?
Yes – it is permitted to do so by the legislation
What happens in the FCA wants to change any rule?
- FCA first consults on changes
- FCA considers feedback
- FCA introduces new rules
When can draft rules be introduced in FCA handbook?
As an interim stage for further consideration
What are the three ICOBS principles?
- Pay regard to the interests of customers and treat them fairly
- Communicate with customers in a way that is fair and not misleading
- Take reasonable care to ensure the suitability of their advice
FCA training requirements
Employees must be of good repute and remain competent for their role
How often should employees be trained under FCA rules?
Trained and reviewed regularly to be at an appropriate level.
What qualifications are needed to sell health insurance?
No particular exams, but firms must assess levels of competence required and then implement a training programme.
What happens if the FCA feels a firm is not adequately reviewing employee competence?
It can take disciplinary action
IDD abbreviation
Insurance Distribution Directive
Training requirements in the IDD
Brokers and insurers must do at least 15 hours of training and CPD each year
What specific areas must a practitioner be able to demonstrate knowledge in
- Insurance market and applicable laws
- Claims handling, complaints handling, customer needs and financial competency
- Business ethics and conflicts of agreement
Conduct risk definition
The risk that firm’s behaviour will result in poor outcomes for
customers
Vulnerable customers
Susceptible customers due to age, physical or mental impairment or specific situation
Four main requirements for firms to deal with vulnerable customer
- Understanding needs of market
- Ensuring staff have the skills to recognise and deal with vcs
- Responding to needs throughout design and customer service
- Monitoring whether they are meeting needs
Which factors affect what guidance means for individual firms?
- Context
- Size
- Market
- Customer characteristics
What does a low loss ratio indicate?
Premiums might not represent fair value or there are limitations to the cover, preventing claims being made.
2 rules to ensure IDD compliance
- Each product aimed at and tailored to target customers
- Commissions/acquisition costs must represent fair value
What is consumer duty replacing
Principle 6 and 7 – customer interests and clear communication
Key parts of the Consumer Duty
- Products and services
- Price and value
- Consumer understanding
- Consumer support
FCA objectives for customers from new Consumer Duty
- Fair value
- Suitability and treatment
- Confidence
- Access
CII Code of Ethics
– Not part of the regulatory regime
– Helps meet FCA ethical standards
5 central principles of Code of Ethics
- Compliance with Code and laws
- Highest ethical standards
- Best interest of clients
- Provide a high standard of service
- Fair treatment
