CH. 9 Flashcards
compulsory insurance and statutary regulations
1
Q
In the UK, the government acts as an insurer, by providing certain benefits for individuals, what benefits are these
A
The benefits include, welfare benefits, unemployment benefits and retirement benefts
2
Q
What are the compulsory insurance for Private Individuals in the UK
A
- Motor Insurance
2. Public Liability in respect of ownership of dangerous animal or dangerous dogs
3
Q
What are the compulsory insurance for Professions and businesses in the UK
A
- Motor Insurance
- Employer Liability if company has employees
- Public Liability for specific trades and professions
- Professional Indemnity for solicitors and other professionals including insurance intermediaries
- Marine Pollution Liability is compulsory for operators of nuclear reactors
4
Q
What are the main reasons why certain forms of insurance are compulsory in particular cases
A
- To provide funds for compensation- main objective is to provide means by which an injured or suffering loss, through someone else’s fault may receive compensation
- In response to national concern
5
Q
What did the Employers Liability Act of 1969 comprise of
A
It made is compulsory for employers in the Great Britain to effect Employer’s Liability Insurance. This insures them against their liability to pay compensation to employees who sustain bodily injury or disease arising out of and in the course of their employment.
Their some exceptions including family members and gov’t agencies. Minimum required limit of 5Million Pounds, Insurance market provides 10 million as standard
6
Q
What did the EMployer’s Liability Regulation 2008 change
A
It changed and removed the requirement for employers to retain and display certificates for a specified period at each place of work
7
Q
What does the road traffic act 1988 state
A
It stipulates that it is illegal to cause or permit the use of vehicle on any other public place unless an insurance policy is in force, covering third party damage and third party bodily injury or death
8
Q
Who has an influence in the area of compulsory motor insurance in the U.K
A
The European Union
9
Q
Give an example of an subsequent changes to the UK Law that have been prompted by the EU directives
A
Compulsory third party property damage cover and requirement to be able to trace the insurer of a vehicle from its registration plate
10
Q
How many EU motor insurance derivatives were brought into the UK law between 1973 and 2007
A
Five EU motor insurance derivatives consolidated by the Codified Motor derivatives introduced in 2009
11
Q
what amendment did the deregulation act 2015 make for the Road Traffic Act
A
The following are the amendments;
- insurance certificate must be delivered to the policy holders , but delivery will no longer require for the policy to be effective
- Where policy is cancelled mid-term, the policyholder is no longer required to return the certificate or make a statuary declaration or any statement acknowledging policy has ceased to have effect( not doing so is not an offense)
- Insurers are relived of the burden of requesting policyholders to surrender certificates for the cancelled policies as a prerequisite of avoiding contractual liability
12
Q
What is a valid evidence of Road Traffic Act of 1988 for motor insurance
A
The certificate of motor insurance
13
Q
When did the Deregulation Act 2015, come into effect
A
It came into effect on the 30th June 2015
14
Q
what is the key role of the Motor Insurer’s Role
A
There key role is handling motor insurance claims for compulsory motor insurance
15
Q
which is one of the provision of the Riding Establishment Act 1970
A
It stated that all proprietors of riding establishment must have public liability Insurance
16
Q
For Liability insurance against wild animals and dangerous dogs, which act don’t include the nature and scope of this insurance
A
- The Dangerous Wild Animal Act 1976
2. The Dangerous Dogs act of 1991
17
Q
Generally why are insurers not willing to issue policy that would cover liability arising out of ownership of a wild animal or dangerous dogs
A
This is because if they did so then it would amount to selection among insurers. Instead the insurer would probably be prepared to insure the risk as an extension to another insurance policy held by the insured. such policies include household policy where it would be covered in the public liability section/policy.
18
Q
Professional Indemnity Insurance
A
This insurance is compulsory for solicitors/accountants, insurance intermediaries who are authorized by the FCA
19
Q
Solicitors (Amendment) Act of 1974
A
This states that Professional Indemnity Insurance is compulsory for solicitors. This insurance indemnifies solicitors against claims of financial loss suffered by client as a result of professional negligence from the solicitor
20
Q
Are Appointed Representatives and Introducer appointed representatives required to have Professional Indemnity Insurance
A
no, they are not required, since everything they do is undertaken for an insurer or an intermediary that is responsible for their action. However Insurance intermediaries authorized by the FCA must have PI insurance
21
Q
What is the current minimum limit for PI insurance for insurance intermediaries
A
The current limit is 1 million pound to 1.5 million pound, although all firms should consider their potential liability and purchase sufficient insurance cover
22
Q
What are the reasons PI insurance has grown over the years in London
A
- the rising cost of legal services
- adverse judicial decisions
- retrospective legislation which may move the goalposts ti the determinant of insurers
23
Q
The Unfair Term in Consumer Contracts Regulations 1999(UTCCRS) consisted of
A
These regulations applied, with certain exception, to contracts between a consumer and supplier
24
Q
The Consumer Right Act 2015
A
Consolidates and clarifies existing consumer legislation on unfair contract terms, remove conflicts overlaps between UTCCRs and unfair contract terms act 1997.
This provision covers both Consumer contract and consumer notices
25
What does the Consumer Right Act 2015 ensure
This Act ensures that terms used in contracts and notices will only be binding upon the consumer if they are fair.
26
How does the Consumer Right Act 2015 define Unfair terms
They define them as those that put the consumer at a disadvantage, by limiting the consumers right or disproportionately increasing their obligation as compared with traders rights and obligation
27
How does Consumer Right Act 2015 assist with court cases
It sets out factors a court should take into account when determining whether a term is fair
28
What does the assessment fairness test take into account
It takes into account nature of the subject matter, specific circumstances existing when the terms were agreed, and other terms in the contract
29
When developing the
| Consumer Right Act, what did the gov't take into account
The Gov't took into account the definitions and measures contained within the EU directives on Consumer Right
30
When is a term considered transparent
If it is expressed in a plain and intelligible language and in the case of written term is legible
31
When is a term considered prominent
If it is bought to the consumer's attention in such a way than a in average consumer would be aware of the term.
An average consumer is one who is reasonably well-informed, observant and circumspect
32
Grey List
List of terms that are presumed to be unfair
33
Which key term is included in the grey list of insurance, which is regarded as unfair
This is a term which has the object of effect of excluding or hindering the consumers right to take legal actions or exercise any other legal remedy
34
What are the new addition to the grey list of terms, considered to be unfair
1. dispropotionetly high charges where the consumer decides to cancel the contract
2. Terms enabling the trader to determine the characteristic of the subject matter of the contract after the conclusion of the contract
3. Terms allowing the trader to determine the price after the consumer is bound by the agreement
35
Whats another key term included in the grey list
The object or the effect of enabling the trader to alter the terms of the contract unilaterally without a valid reason unless;
1. the trader is required to inform the consumer of the alteration at the earliest opportunity
2. The consumer is free to dissolve the contract immediately
36
If the insurer has been found to use policies containing unfair terms or has been found to breach common law, who will be put incharge
The Competitor and Market authority (CMA) or the FCA may require an undertaking to make ammend. They may bring injuctive to prevent actions to prevent further use of the terms
37
Which enhanced measures does the Consumer Right Act
1. Redress measures such as
i. compensatory payment to customers suffering as a result of the use of unfair terms
ii. enabling consumers to terminate contract
iii. where consumer is not identified, measures taken for collective interest of consumer
38
privity of contract
this concept means that a person can only enforce a contract if they are a a party to it
39
what did the Contracts (Rights of Third Party Risghts) Act 1999 reform
This rule and sets out the circumstances in which a third party will have a right to enforce a term of the contract
40
Third Party (Right against Insurers) Act of 1930
This Act confers rights on third party against insurer in the event of an insured being insolvent
41
what were the disadvantages/drawbacks of the Third Party(Rights against insurer) Act 1930
The drawbacks where
1. The process is complex,costly and time consuming
2. This process involved requiring an application to be made to court to restore a dissolve insured company to the register of companies in order to establish liability and bring a claim against it
42
Third Party(Rights Against Insurer)Act 2010
This Act Sets out to protect insurance proceeds from the effect of insolvency
43
What does Third Party(Rights Against Insurer)Act 2010 permit
The Act is less time consuming and complex, as it permits third party to bring a claim directly to the insurer, without r
44
How has the Third Party (Rights against Insurers ) Act 2010 improved compared to the Act 1930
1.Third party no longer needs to having to restore the insolvent company to the register
2.It prevents circumstances where the insurance monies are paid out to the insolvent insured company and then go straight to the creditors (due to insolvency)rather than being paid to the intended beneficiaries of an insurance policy
Prior to the 2010 Act protection offered by insurance contract was often undermined
45
Inorder for the Third Party(Rights against insurer)Act 2010 to apply insured must
1.Must be insolvent
2.Must incur a liability to a third party for which they have insurance
This 2010 Act gives claimants more rights of determining whether the company has insurance before issuing a claim
46
Due to the fast changing solvency legislation, what happened to the Third Party(Rights against Insurers) Act 2010
The 2010 Act was defective and not brought into force
47
which Act replacedThird Party(Rights against Insurers) Act 2010 the
The insurance Act of 2015(IA 2015), this act includes amendment of the Third Party(Rights against Insurers) Act 2010.
IA 2015 aimed at rectifying failures to include certain insolvency circumstances in the original of the 2010 ACT
Other amendments made dealt with long tail liabilities such as cancer , that go up to 50 years
48
When was the Insurance Act 2015 bought into effect
1st August 2016
49
The EU Gender Derivatice was transposed by the UK law by;
The Equality Act 2010( Amendment) Regulations 2012
50
The EU Gender Derivative states that
By the 21st December of 2012, it was agreed that insurers cannot use gender as a factor in pricing or benefits
51
what is the test-achats ruling
The judgment ruled that the insurance exemption in the Gender Derivative,which allowed insurers to take sex into account when calculating premiums and benefits went against the principal of equal treatment between men and women
52
what ares some of the examples of gender related- insurance practices which are allowed under the derivative and are not affected by the Test-Achats ruling
1. Medical tests are different for men and women, different tests are used for insurance screening, e.g prostate for men, mammograms for women
2. Collecting information on gender status, as questions on gender specified disease, e.g women have a history of breast cancer
53
what does the Enterprise Act 2016 state
This Act states that policyholders has a legal right to claim damages in the event of late payment.
Passed in 4h May 2016
54
The Enterprise Act 2016 is an amendment to which act
This Act made an amendment to The Insurance Act 2015, where this amendment applies to every (re)insurance policy placed or renewed after 4th may 2017.
55
What other amendments did the Enterprise Act 2016 make on the IA2015
This Act also added an implied term in every contract of insurance that insurer must pay any sums due to their insured within a reasonable time
56
What should be taken into account when assessing the reasonable time for insurer to make claim payment
1. The type of Insurance
2. The size and complexity of the claim
3. factors outside the insurers control
4. Compliance with relevant statutory or regulatory rules or guidance
57
Which is one key safeguard that has been built to avoid spurious claims
The loss has to be foreseeable insurer would be able to foresee that a delay in paying for a broken machine in a busy factory would leas to production losses
58
Insurance Premium Tax
This is levied by the gov't on general insurance premium in the UK .
59
What are the two rates of insurance premium tax
1. A standard 12% rate
| 2. A higher rate of 20% for travel,domestic and electrical appliances and some vehocles
60
Which insurances a re exempt from insurance premium tax (IPT)
1. Insurance and re insurance of Ships , aircraft and good-in-transit(internationally
2. Long-term insurance
61
Who collects the insurance premium tax(IPT)
IPT is collected by insurers together with the policy premium. Insurers are required to account to the HM revenue& customs quarterly for the tax that is due
62
Before 2005 regulations,the general insurance industry largely relied on voluntary codes of practice issued by a range of trade bodies such as
1. Association of British Insurers
| 2. the voluntary regulatory body General Insurance Standard s Council(GISC)
63
The General Insurance Standards Council rules included which codes
It included private customer code and Commercial Customer code.
64
Who were some of the members of the General Insurance Standards council
Members included Insurers, Lloyd Brokers and all types of intermediaries, it was a volunteer regulator, membership was not compulsory
65
in 2005 the market moved form a voluntary to statutory regulation under which authority
Under the Financial Service Authority(FSA)
66
What does the Financial Services and Market Act 2000 (FSMA)sets out
This act sets out in detail the way in which FSA had to carry out its function
67
The Financial Services and Market Act 2000 gave the FSA regulatory control over
1. General Insurance Comapnies
2. Intermediaries
3. Lloyd
68
In April 2013 twin peaks approach to regulation was introduced under the provision of
Financial Service Act 2012
69
When was the FSA disbanded
in 1st April 2013 was disbanded and split into three new bodies
70
Which are the three new bodies responsible for regulating financial services, that came form the Financial Service Authority
1.financial Policy Committee(FPC)
2,Prudential Regulation Act
3. Financial Conduct Authority(FCA)
71
Financial Policy Committee
This is a committee within the Bank of England. They are responsible for watching for emerging risks to the financial system as a whole and provide strategic direction for the entire regulatory regime
72
What is the responsibility of the Prudential Regulation Authority(PRA)
They are responsible for the stability and resolvability of systematically important financial institutions, such as banks, insurers and building societies
It is within Bank of England
73
What approach does the PRA use
It uses the judgement-based approach, to supervision focusing on the external environment, business risk, management and governance, risk management and control and capital and adequacy
74
What are the responsibility of the Financial Conduct Authority
This is a separate independent regulator responsible for conduct of business and market issues for all firms including insurers, and prudential regulation of small firms(e.g insurance brokerage and financial advisory firms)
75
How will the FCA take action early to avoid consumer detriment
The FCA will use thematic review and market wide analysis so as to identify potential problem in areas like financial incentives.They will also review the product life cycle from design to distribution, with power to ban products if necessary
76
The Bank of England and Financial Service ACT 2016
This modified the Financial service Act of 2012.It put the Bank of England at the heart of the UK financial stability by strenghtenin the bank's governance and ability to operate more effectively as One Bank
77
What did the ACT 2016 also change for the PRA
The PRA became part of the Bank, ending its subsidiary status and a new PRudential Regulation Committee(PRC)
78
Which other bank committee operate with the PRC
1. Monetary Policy Committee(MPC)- sets interest rate
| 2. Financial Policy Committe(FPDC)
79
The PRA is responsible for which institutions
The PRA regulates institutions which accepts deposits and which accepts insurance contracts. They authorise and supervise all banks,building societies, credit unions, general insurance and life assurers
80
Under the Financial Service ACT 2012, what is he PRA primary objective and two secondary objective
The PRA primary objective is
1.To provide safety and soundness for PRA regulated person
The Secondary Objectives are;
1.To ensure PRA regulated persons to work in a way to avoid adverse on the stability of the UK financial system.
2.Minimizing the adverse effect that the failure of a PRA regulated person could be expected to have on the stability of UK financial system
81
Who recommended creation of new secondary competiton objective for the PRA in 2013
Parilamentary Commission on Banking Standards(PCBS), led to an amendment in the Financial Services Act 2013(banking reform)
82
What is the PRA secondary competition objective
The PRA's requirement to facilitate competition is subordinate to its general objective
83
What is the PRA insurance objective
contributing to the securing of an appropriate degree of protection for those who are or may become policyholders
84
What are the Threshold Conditions
The minimum requirement a firm must meet in order to be allowed to carry out regulated activities
85
What are the Threshold condition for PRA
1. a firms head office, especially its mind and management, are in the UK
2. a firm's business to be conducted in a prudent manner, and firms maintains appropriate financial and non-financial resources
3. a firm should be fit, proper and appropriately staffed
4. A firm and its group sto be capable of being effectively supervised
86
The PRA Judgement led approach focuses on
It focuses on forward-looking approach including
1.How a firm would be resolved if it were to fail
2.The impact this would have on the system as a whole
3.The use of the new public fund
They aim to pre-empt the risk before they crystallise
87
HOw does the PRA risk assessment framework operate
This assessment operates in a way that reflects PRA additional objective to protect policyholder as well as the financial system
88
What are the three elements of the risk assessment framework
1. The potential impact on the policyholders and the financial system of a firm coming under stress of failing
2. How the macroeconomic and business risk context in which the firm operates might affect the viability (working successfully)of the business model\
3. Mitigating factors including risk management, governance and financial position
89
The intensity with which firms are supervised depends on
It depends on the level of riskiness related to the three elements captured in the risk assessment framework
90
Each firm faces at least baseline level of monitoring which involves
1. ensuring compliance with prudential standards of capital
2. Liquidity,asset valuation,provisioning and reserving
3. at least an annual review of risk posed by firm or sector of the PRA objectives
4. Assessing a firm's planned recovery actions and how it might exit the market
91
The proactive intervention framework
provides judgement about proximity to failure within a firm
92
how many clearly demarcated PIF stages are there
There are five stages
93
which culture does the PRA expect the insurers and insurance company
A culture that supports prudential management not only from the senior staff but also all the individuals working in an insurance company
94
What does the PRA focus on, when making judgement about a firm
They focus on whether boards and management clearly understand the circumstances in which insurer's solvency and viability come into question, whether accepted theories are challenged,whether action is taken to address the risk on a timely basis
95
Who is the lead regulator for Lloyd's as a whole
The PRA
96
What is the FCA responsibility for Lloyd
The FCA takes responsibility for certain conduct of business issues
97
How are the society of Lloyd's and Managing agents regulated
They are dual-regulated firms by the PRA and FCA.
| Lloyd Brokers are FCA regulated firms
98
What is the FCA strategic overarching objective
To protect and enhance confidence the UK financial system
99
What are the three operational objective
1. Consumer Protection-securing an appropriate degree of protection for consumers
2. Integrity- protecting and enhancing integrity of the UK financial system
3. Competition-promoting effective competition in the interest of consumers in the market for regulated financial services and services provided by a recognized investment exchange
100
How is the FCA more proactive than the FSA
It intervenes at an early stage so as to pre empt and prevent widespread harm to consumers
101
Previously only the office of fair trading could review super complaints from consumer groups,highlighting problems in a particular market
However now the FCA is able to review and react to this detailed super complaints by consumer groups.
102
Competition and Markets Authority aim
It aims to promote fair competition for the benefit of consumers both within and outside the UK.
It supersedes and brings together the function of the competition commission and the office of fair trade (OFT)
103
How did the FCA categories the risks in the past
The categorized there risk in the form of C1 (larger banking and insurance groups with large number of customers) to C4 (smaller firms usually intermediaries)
104
How are firms categorized by the FCA now
They are categorized as either Fixed portfolio or flexible portfolio
105
What are fixed portfolio firms
These are firms small in number include large insurers and insurance brokers.
They have a named FCA supervisor in frequent contact with them
106
What type of supervision are flexible portfolio firms subject to
The supervision they are subject to is
Pillar 2-Event Driven Reactive supervision
Pillar 3 -Thematic issues and product supervision
107
What type of supervision are fixed portfolio firms subject to
They are subject to a programme of firm or group specific supervision(Pillar 1)
108
Why did the FCA make changes in the categorizing of risks
In order to make a better use of its resources and concentrate on firms likely to have a large impact, if things go wrong
109
What are the three pillars of risk framework in the FCA
1. Firm Systematic framework(FSF)
2. Event-Driven Work
3. Issues and Products
110
Firm systematic framework
This asses how a firm conduct's it's risk.It entails business model and strategy analysis embedding of fair treatment of customers
111
Event Driven Work
supervisory activity in response to issues that are emerging or have recently happened. This is the flexible element of the FCA, supervisory staff are allocated so that resources are devoted to situations and firms of high risks to the customers
112
Issues and Products
The flexible approach allows the FCA to look at reviews of issues and products as they take place.Th FCA will conduct thematic review and provide detailed feedback on the outcome of such issues
113
Which firms receive less contact with the FCA
Flexible portfolio firms receive less contact with the FCA in comparison to Fixed Portfolio firms.
That's why the FCA makes an increasing use of roadshows and workshops to support the flexible portfolio firms
114
What power does the FCA have
The FCA has the power to intervene to prevent detriment from occuring
115
What are the three Intervention the FCA can excercise
1. The FCA can take timely and necessary steps to ban a product or service in the retail sector without a prior cost-benefit analysis or consultation valid for 12 months
2. The FCA can take action against misleading financial promotion
3. The FCA can disclose the fact that enforcement(ensuring compliance with laws and regulation)against firm or individual has commenced
116
What do the FCA Authorization function focus on
It focuses on the proposed business model, governance and culture and the system and control the firm intends to put in place for
Product governance
end-to sales process
prevention of financial crime
117
when does the FCA work closely with the PRA
They work closely when considering application to approve individuals to roles which have a material impact on the conduct's of a firms regulated activities
118
What do the PRA and FCA look for when assessing applicants for these roles
1.good understanding of how to ensure good outcomes through corporate culture, conduct t risk management and product design
119
Who does the FCA report to which organisation annually
The Government and Parliament, and there work is overseen by board appointed by the government with a majority of non-executive directors
120
When is the FCA required to make a report to the treasurey
In the event of a regulatory failure caused by the FCA's action
121
How does the FCA engage with the consumer directly
They engage directly through social media, road shows,focus groups,consumer bodies and fact to face contact
122
What other sources does the FCA collect and analyse consumer information
Complaints, including those investigated by the FOS, external academic and public interest research
123
What are he four statutory panels of views representation, that the FCA is required to have in place
1. The views of consumers
2. The views of regulated firms
3. The views of smaller regulated firms
4. The views of market practitioners
124
In 2013 the FSA handbook was replaced by
The PRA Rulebook and the FCA Handbook reflecting the new regulatory regime
125
How do the FCA and PRA seek to maintain confidence in the UK financial system
They seek to maintain confidence through supervision and monitoring of firms
126
What are the 11 principles of good buisness practice that must be met
1. Integrity
2. Skill Care and Diligence
3. Management and Control
4. Financial Prudence
5. Market Conduct
6. Consumers' Interest
7. Communication with clients
8. Conflict of interest
9. Customers relationship of trust
10. Client's Asset
11. Relationship with regulators
127
What does the FCA expect authorized firms to embbed
They expect authorized firms to embed the fair treatment fo customers principle in their corporate strategy and build into their firms culture and day to day operations.
And throughout the product life cycle
128
Who is an apportionment and oversight officer
Is an officer responsible for allocation and monitoring of regulated activities withing the firm. Anyone performing a controlled function must be approved person
129
What is a MLRO
Money Laundering Reporting Officer, there is a requirement for insurance companies and intermediaries to appint them
130
What is the PIDA 1998
The Public Interest Disclosure ACT deals with whistle blowing, that is the public allegation of a firm's concealed misconduct, usually from within the same organisation
131
What is SYSC
Senior management arrangements, systems and controls.
132
What does PIDA state should happen to individuals who make qualifying allegation on whistle blowing
The individuals have no right to suffer detriment by an act or omission of their employer
133
A qualifying Disclosure is a reasonable belief of the worker, and tends to show one or more of the following
1. A criminal offence
2. A failure to comply with any legal obligation
3. A miscarriage of justice
4. Damage to the environment
5. Putting health and safety of an individual in danger
6. Deliberate concealment relating to any of the above
134
Will PIDA protect an employer who whistle blows
Yes, they will provided it is made in good faith
135
Who should carry out controlled functions
Controlled functions should only be carried out by those who meet the appropriate standard i.e Approved Persons
136
What are the three things involved in a controlled functions
1. They Involve a significant influence on the conduct of an authorized person's affair
2. Involve dealing with customers in connection with regulated activities
3. Involve dealing with property of a customers in connection with regulated activities
137
What test is applied for an approved person
A fit and proper test
138
How should a firm look at their approved person applicant in regards to their
1. honesty, integrity and reputation
2. competence and capability
3. financial soundness
139
When should a fit and proper test be taken
It should be performed before a person is appointed to a controlled function role and on a regular on going basis
140
What led to the Senior Managers and Certificate Regime a
This is a result of changes required by Solvency II and the regulator's intention to bring insurance into line with new banking supervision rules
141
What does Senior Managers and Certificate Regime focus on
It focuses on senior individuals in firms, who hold key roles or have overall responsibility for whole areas of relevant firms
142
According to the SM&CR firms must insure that
1. ensure each senior manager has a statement of responsibilities(what they are personally accountable for)
2.produce a firm responsibilities map
ensure all senior managers are pre-approved by the regulators before carrying out their roles
143
The government introduced duty of responsibility
This means senior managers should take steps that is reasonable for a person in that position to take, to prevent a regulatory breach from occurring
144
What are the three parts of Senior Managers and Certificate Regime
1. Senior Managers
2. Certificate Regime
3. Rules of Conduct
145
What action will the Senir Manager and Certificate Regime take if the individual governance control is lacking in the business areas they accountable for
the SM&CR will take greater disciplinary action to these individual
146
Senior Manager Regime applies to which person
This applies to persons performing senior roles in a firm. These roles are known as senior management functions (SMF)
147
What is the list of Senior Management Function for executive prescribed by PRA for authorized firms
Executive
1. Chief executive Function
2. Chief Finance Function
3. Chief Risk Function
4. Head of Internal Audit
5. Head of key business area
5. Group entity senior manager
148
What is the list of Senior Management Function for non- executive prescribed by PRA for authorized firms
1. Chairman
2. Chair of the risk committee
3. Chair of the audit Committee
4. Chair of remuneration committee
5. Senior Independent director
149
What is the PRA list of Senior Manager Function
```
Executuve
1.Executive Director
2.Significant responsibility senior manager
3.Manager laundering reporting officer or nominated officer
4.Compliance officer
Non-executive
1.Non-executive director
2.Chairman of the nominations committe
```
150
Certificate of Regime
This applies to individuals who are not carrying out SMFs,or whose roles have been deemed capable of causing significant harm to the firm or it customers by regulators.
Individuals performing these tasks need not to be approved by regulators, but there roles are specified by regulators
151
Under the Senior Manager & Certificate Regime what power do the regulators have
They have the power to make Rules of Conduct which apply to Senior Managers,certified persons and other employees
152
When will a
| public Censure Disciplinary action taken by the FCA
This occurs when the FCA considers that a firm has failed to meet a requirement imposed on it under the Financial service Act 2012, it may issue a public statement of misconduct on an approved person
153
why would the FCA issue a warning notice first to the approved person failing to meet minimum requirement of FSA
If the FCA considers a financial penalty to be inappropriate or if its in addition to the financial penalty
154
When will a
| Financial Penalty Disciplinary action taken by the FCA
The FCA will take this action if the firm has contravened(failed to comply with)a requirement of the Financial Service ACT 2012 or an approved person guilty of misconduct
155
What will the FCA take into account when considering financial penalty
1. resource level of the person in contravention
| 2. amount of profit accrued or loss avoided
156
What are the other circumstances FCA will consider when making a financial penalty
1. The conduct of firm or person following contravention
2. their disciplinary record
3. their compliance history or any other relevant history in relation to their dealing with regulators
157
Which wide range of offences, will lead to FCA exercising Prosecution as a Disciplinary action
1. performing regulated activities without authorization
2. failing to cooperate with/giving false information to the regulators' appointed investigator
3. failing to comply with provisions about control over authorized person
4. providing false or misleading information to an auditor
5. misleading the regulator
158
What are the regulatory or civil action the FCA could take
1. injunctions
2. restitution
3. withdrawal of approval
4. cancellation of permission
5. withdrawal of authorization
6. prohibition of individuals from carrying out functions in relations to regulated activities
159
If the FCA considers disciplinary action to be inappropriate for a firm unable to meet minimum standards or doubt over the fitness of an approved person, which remedial action can it take
1. Vary or cancel fir permission
2. withdrawal its terms of authorization
3. withdraw an individuals status as an authorized person
4. sometimes, withdraw approval of the performance of specified function
160
Any UK company wishing to transact in the EU, must be authorized by
The PRA,
Its objective is that only company operated by fit and proper person should be authorized to transact business.
PRA can authorize a company to carry out general insurance and restrict authorization to specific classes of general insurance
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IF a UK-based insurance company decides that it wants to transact insurance, what should it do
It has to complete and submit a detailed form to the PRA
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Why is capital adequacy important
It it important because capital is intended to provide capacity to meet unforeseen losses, it's also crucial for maintaining the confidence to those creditors
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What is a solvency margin
This is the amount by which asset must exceed liabilities
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What is Solvency I
Introduced in the early 1970.This required general insurance Solvency to be calculated on two different bases. The greater of the two sums produced as a result, was used as the minimum solvency margin
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What were the two different methods of calculating solvency for Solvency I
1. Was to apply a scale of percentages to premium
| 2. Was to apply scale of percentages to claim
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What were the Draw backs of the design of solvency I
1. This design lacked sensitivity
| 2. It did not capture the key risks, including market, credit and operational risk
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What is an Enhanced Capital Requirement
This was introduced by the FSA as a risk based approach to insurer's capital requirement
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How is the Enhanced Capital Requirement (ECR) calculated
It is calculated by non- life insurers by adding together
1. An asset related requirement
2. An insurance-related requirement
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What is an asset related requirement
a prescribed percentage determined by each type of admissible asset of an insurer i.e. loans and shares
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What is an insurance related requirement
a prescribed percentage determined by each class of business and calculated separately for net written premiums(total debited premium- reinsurance cost) and technical reserve( including current outstanding claims and unclaimed premium reserves)
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Why was the Enhanced Capital Requirement designed
It was designed to minimize the risk of an insurance company having insufficient funds to meet present and future claims.
If the minimum capital requirements prescribed are not maintained by a company, the regulator have the power to itervene
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Solvency II replaced Solvency I. What does Solvency II set out
It sets out a new, stronger EU wide requirement on capital adequacy and risk management for insurers with the aim to increasing protection for policyholders
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Solvency II has three pillars which are
1. Capital Adequacy
2. Systems of governance
3. Supervisory reporting
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What does Pillar 1 (Capital Adequacy) of pillar 1 cover
Pillar 1 covers financial requirement,that solvency II imposes and defines resources a company needs, to be considered solvent
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What are Solvency II capital requirement
1. Solvency Capital Requirement(SCR)
| 2. Minimum Capital Requirement(MCR)
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What is Solvency Capital Requirement
Level of capital requirement to give 99.5% confidence that assets will be sufficient to cover liabilities for over twelve months
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What is Minimum Capital Requirement
Level of capital requirement to give the national supervisor 85% confidence that assets will be sufficient to cover liabilities for over twelve months
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What happens to firms that fall below the Solvency Capital requirement
Firms that fall below the SCR will trigger ladder of intervention. Consisting of Common European intervention tools aimed at recovering firms solvency position within a set period of time
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What happens to firms that fall below the Minimum Capital requirement
Firms will have a shorter period to recover to their position, if firm fails to recover solvency position, the ultimate supervisory action would be closure.
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Which method can a firm use to calculate Capital Requirement
1. Standard Formula
2. Undertaking Specific Parameters
3. Internal models
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How is the standard formula used to calculate capital requirement
Its designed to capture the standard risks a firm may face and calculate capital requirements for these risks
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How does the Standard Formula categorize risk
It categories risk into risk modules for capital purposes. These models are market risk, credit risk, underwriting risk and operational risk
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Undertaking Specific Parameter
This calculation applies to certain risks, and needs to follow a set calculation process, with ultimate approval from the regulator
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internal Model
This calculation is for complex firms, a partial or full internal model allows a more bespoke assessment of a particular business and its risk profile.
A firm wishing to carry out this calculation must seek prior approval from the PRA
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How do Lloyd's managing agent seek approval for partial or full internal model
They seek approval from Lloyd's of London, who in turn get approval from the PRA
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Own Risk and Solvency Assessment
is a set of processes and procedures that are used to identify, assess, monitor,manage and report the short term and the long term risks an insurance and re insurance company may face.
It is a key part of the Pillar 2- systems of governance
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What does Own Risk and Solvency Assessment (ORSA)ensure
It also enables companies to determine the level of funds they would need to ensure solvency needs are met
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What key role does pillar 3 (supervising report )play in the Solvency II regime
It ensures greater transparency to encourage market discipline and is achieved by giving information to the regulatory and the market in form of public and private reports
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What are the Private and Public report in Pillar 3 of supervising report of Solvency II regime
1.Solvency and Financial Condition Report- this is Public
2.Regulator Supervisor Report - this is Private( between a firm and its national supervisor)
Disclosure in this report is qualitative and quantitative
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What will be found in the Regulator Supervisor Report, that's not in the Solvency and Financial Condition Report
An additional level of detail and granularity for private disclosure to the regulator over and above the required for public disclosure in the SFCR (private one)
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How does the PRA ensure that its standard including capital requirement are maintained
Regular monitoring to ensure (they are maintained) is an important aspect of the work of the PRA. They require that each financial year, every authorized insurance company to prepare and submit information
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What are the quantitative reports insurers are required to submit due to the Solvency II regime
The qualitative reports are;
1. Balance Sheet
2. Premium claims and expenses
3. Own fund
4. Variation analysis
5. SCR and MCR
6. Assets
7. Technical Provisions
8. Reinsurance
9. Group Reporting
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What are the qualitative reports insurers are required to submit due to the Solvency II regime
The qualitative reports are;
1. Business and Performance
2. System of governance
3. Risk Profile
4. valuation of solvency purposes
5. Capital Management
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Lloyd's is approved to use an internal model to calculate its SCR
The PRA it to report the internal model output produced by the managing agents for each syndicate it manages
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What are the PRA various powers of intervention
1. It can restrict a company's premium income
2. company required to submit accounts more frequently
3. company required to submit more information
4. Prevent insurers from accepting new business
5. require company to restore its capital position
6. Impose requirement on the company's investment policy
7. final sanction is withdrawal of authorization
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What type of insurance sales /professions are exempt from FCA regulation
1. Extended Warranty
| 2. Solcitors
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Appointed representative
is a person or firm that is exempt from regulation because principal takes responsibility for them under a written contract
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How does the principal appoint AR
The Principle must advise the FCA of the appointment and then it will add it to a register and approve its directors. If its not added to the FCA register AR cannot perform any activities for principal
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What is the Retail Mediation Activities Return (RMAR)
This is submitted via online system called Gabriel. They provide a framework for the collection of information required by the FCA as a basis for its supervision
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How does the Retail Mediation Activities Return help the FCA
It helps the FCA in to monitor capital adequacy and financial soundness
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How does the FCA monitor a firms regulatory position
It monitors by requiring the reporting of certain information
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What is the frequency of reporting accounting information
The frequency will depend on the type of firm and the amount of regulated income. Large Firms with large income may be required to report more frequently(quarterly)
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If a firm has AR, how do the AR report their accounting information
The ARs do not complete any returns to the FCA. The principal firm must include the AR's income in its own,as well as any complaints
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Threshold conditions
These are pre-requisition to continue authorization
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What does the retail mediation activities return require for threshold condition
It relates to whether there have been any changes to a firm's close links and controllers
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For the Conduct of business data, what is the FCA looking retail mediation activities return to entail
1.Whether the conduct of regulated activities is the business core or its secondary intermediary
2.the number of ARs
3.the monitoring of ARs.
The FCA uses this data to assess the extent and nature of the business, and the potential risk posed by the business
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For the Product Sales data ,what is the FCA looking retail mediation activities return to entail
It entails data on the different types of products sold by firm.It assess the FCA in conducting a thematic- supervision work(topic-based research within the market)
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The product sales data in the retail mediation activities return entails
1. types of policies sold
2. the volume of policies
3. area where a firm is part of a chain suppl
4. where a particular product type formed a significant part of the firms business's
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How does the FCA calculate the fees they charge authorized firms
By requiring the authorized firms to provide details of their income from regulated activites
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How must all authorized firms report complaints
Firms must provide detail of the type of product they have received complaints about and the nature. of the complaints, and how long it has taken them to handle the complaints,whether it was 3 days/8 weeks or longer than 8 weeks
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Insurance Conduct of Business SourceBook
This is a rule book that applies specifically to the sales and administration process for general insurance
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Which policies have more stringent requirements according to the ICOBS
Payment Protection indemnity policies and certain pure protection (life) policies
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The FCA has introduced stricter rules governing which policy
Guarantee Asset Protection policies
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How many chapters of the Insurance Conduct of Business soucrbook
There are 8 Chapters
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What does the Chapter of Application of ICOBS rules entails
This section defines range of activities to which the rules apply, and include that they apply to activities of the firms ARs in the UK
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What are the range of activities of the Application of ICOBS rules entails
1. an insurance mediation activity
2. effecting and carrying out insurance contracts
3. managing the underwriting capacity at Lloyd's syndicate as a managing agent
4. Communicating or approving financial promotions
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When their is a chain of intermediaries between the customer and the insurer, the ICOBS rules apply to
The rules appl to the intermediares
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According to ICOBS rules states different rules
It states that different rules apply for consumers and commercial customers
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What's the difference between Consumers and commercial customers
A consumer is one acting in their private capacity. if not they are a commercial customer
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If a customer is acting in the capacity of both consumer and commercial customer, they should be treated as
They should be treated as commercial customer
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How does the FCA define financial promotion
It's used to describe advertising of any kind intended to encourage a person to buy insurance or make an investment. Firm need to ensure they take steps to ensure that any promotion undertaken is compliant with rules
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Distance Marketing Directive
This rule applies to protect customers who enter into an insurance contract through a distance scale(through the phone or website).
Consumers a re given a cooling off period and shorten the sale for over the phone sales
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What changes were made to the Guaranteed Asset Protection Insurance Market due concern about competition
These changes came into force on 01/09/2015,aimed at empowering customers when making decisions about purchasing add-on GAP Insurance and limiting the point of sale advantage of add-on distributors
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Firms Distributing add-on GAP Insurance in connection with sale of motor are required to
1. provide customers with prescribed information to help them shop around, be more engaged when making decision about purchasing product
2. introduce deferral period.meaning GAP insurance can't be introduced and sold at the same day
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Where firms use policy summary to provide product information to customers,it must be in a prescribed form containing
1. name of the insurer
2. significant features and benefits
3. significant or unusual exclusions or limitations
4. Duration
5. the need t review
6. price(optional
7. cancellation rights
8. Claim notification process
9. how to complain to the FOS
10. membership of compensation scheme if a firm is unable to meet its financial obligation
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For the ICOBS rules, when do the cancellation rules not apply
They cancellation rules don't apply to short term policies or event.And they don't apply where the terms of a contract have been fully met
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How many days does the section of ICOBS of cancellation give the consumer
It gives the consumer 14 days cooling off period for most general insurance contracts, though not commercial customer
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What is the cooling off period for Payment protection Indemnity
The cooling off Period is 30 Days according to the ICOBS rules. Insurers can only charge if a claim has been made
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What is the General Principle for Claims Handling according to ICOBS rules
The General Principle adopted is that an insurer is responsible for handling claims, whether personally undertaken, delegated or outsourced
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What is the fourth EU Motor Insurance Derivative
This requires insurers to appoint a claim representative in each member state of the EU. This assists with Motor claims that occur abroad
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The FCA states that the insurer cannot refuse to pay claim for Breach of Warranty unless
Unless the circumstances of the claim are connected with the breach and the warranty is the material to the risk and was drawn to customers attention before the conclusion of the contract
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When did the Insurance Distribution Directive 2019/97/EC come into force
It came into force on the 22/02/2016 and member states including the UK transposed the legislative 01/07/2018
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What is the Insurance Distribution Directive
This is the revision and replacement of Insurance Mediation Directive/2002/92/EC.It aims
1. to make it easy for firms to trade across borders
2. strengthen policyholders protection
3. provide level playing field
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What are the key provision of the Insurance Distribution Directive
1. Professionalism-
2. Commision Disclosure
3. Harmonisation
4. New Product governance requirement
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What is the Professionalism requirement according Insurance Distribution Directive
Firms engaged in any activities covered by the Directive must possess appropriate knowledge and ability to complete their tasks and perform their duties adequately
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What is the Commission Disclosure requirement according Insurance Distribution Directive
Pre-contractual disclosure of the intermediary and the nature not the amount of their remuneration(if its commission, fees or any other type). However this is waved for contracts of larger risks or professional customers
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What is the Harmonization requirement according Insurance Distribution Directive
The Insurance Distribution Directive is a minimum harmonization directive, allowing Member States to set stricter requirements if they deem it necessary
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What is the New Product Governance Requirement according Insurance Distribution Directive
These governance requirements include for Ancillary Insurance Intermediaries(ALL), who are connected to travel insurance providers but don't sell or introduce insurance as their main business
They are also applicable to insurance companies that are selling products through companies not authorized by the FCA
A requirement for all general insurance firms in the retail and small corporate market to provide customers with insurance Product information Documents
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What are the General Principles of Insurance Distribution Directives for all Insurance Distributors
1. Distributors must act honestly, fairly and professionally in the best interest of their customers
2. Distributors must communicate in a way that is fair, clear, and not misleading including ensuring marketing materials are identified clearly
3. Remuneration of a distributor or its employees and performance management of employees must not conflict with the duty to act at their customers best interest
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What is Remuneration according to the Insurance Distributive Directive
This includes commission, fees,charge or any other payment including an economic benefit or any financial advantage or incentive offered or given to the insurance distributor
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Which Money Laundering legislation applies to General Insurance
Proceeds Of Crime Act 2002( POCA)
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What is Money Laundering
This is the process by which criminals and terrorist convert money that has been obtained illegally into legitimate funds.It can be carried out in a small and large scale
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There are three stages of Money Laundering Process, which are
1. Placement
2. Layering
3. Integration
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What is the placement Process of Money Laundering
This is the process of putting cash into the financial system and converting it into other financial assets like cheques or property
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What is the Layering Process of Money Laundering
For a criminal to avoid the money being traced back to to its illegal origin,the involve layering, which is a series of complex transaction like overseas fund transfer or stock or future trading
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What is the Integration Process of Money Laundering
When the criminal finally gets access to the money. An example of it replacement or sale of stock, buying property and leasing it
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What are the three strands to the legal rules that apply to money laundering
1. Specific Laws that define what represents a criminal offence and the penalties that apply
2. Money Laundering Regulations apply to a stated range of firms carrying on activities in the financial sector
3. Regulatory rules and guidance apply in different ways to different categories of firms
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What are the most important legislation relating to money laundering
1. Criminal Justice Act 1993
2. Proceeds of Crime Act 2002
3. Serious Crime Act 2007
4. Serious Crime Act 2015
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Criminal Justice Act 1993
This extended Criminal Justice Act 1988 only applied to drug trafficking and terrorism.
It made it a criminal offence to launder gains form other crimes. Individuals should not be actively involved in money laundering, collusion or concealment, also makes tipping off a suspected person a criminal offence
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What are the three principal offences under the terms of Criminal Justice Act 1993
1. Assistance to a criminal where you either know /suspect/ought to have known, that they participated in money laundering activities gives you 14 yrs max. imprisonment.
2. Failing to report either actual knowledge or suspicion of money laundering (max 5 years in prison)
3. Tipping off a suspected criminal, max 5 years imprisonment. Deliberately telling them being involved in laundering activities
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Proceeds of Crime Act 2002
extends the range of offences for money laundering
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Asset Recovery Agency
This is an Agency set up by the POCA with financial investigators whose purpose is to recover the proceeds of criminal activity
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What are the Offences under Proceeds of Crime Act 2002
1.Concealing/transferring/disguising/converting/ criminal property or removing it from the UK
2.Acquiring/possessing/using criminal property
3.Failing to disclose that someone is engaged in money laundering
POCA applies across the broad in the UK
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Serious Crime Act 2002
This extends a range of serious crime prevention orders that could be made by the High Court and amended POCA in a number of important respects
255
What did the Serious Crime Act 2007 abolish
It abolished the ARA(Asset Recovery Agency),transferred all its activities to the Serious Organised Crime Agency (SOCA). Later on SOCA merged into National Crime Agency (NCA)
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Serious Crime Act 2015
This gave effect to a number of legislative proposals relating to serious and organised crime.It builds on the current law to ensure that NCA, police and other law enforcement agencies have the power to effectively and relentlessly pursue, disrupt and bring to justice serious and organised criminals
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The money laundering Regulation 1993
It requires the creation and maintenance of systems to prevent and control money laundering and effective training to be in place.
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The money laundering Regulation 1993 provision applied to
This provision applied to defined organisation operating in the UK financial sector but not general insurance activities like mediation activities
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The money laundering Regulation 2017
This cover applies to a wide range of business
1. credit and financial institutions(including life insurance and financial advisers)
2. auditors, accountants,tax advisers and insolvency practitioners, independent legal professionals,trust or company service providers,estate agents,high value dealers
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The Money Laundering Regulation 2017
It covers the following areas;
1. Customer Due Diligence;Involves verifying the identity of the customer and obtaining information on the purpose and intended nature of the business relationship
2. Policies and procedures; this relates to due diligence measures, record-keeping,reporting,internal control,risk assessment and monitoring in order to prevent activities related to money laundering and terrorist financing
3. Registration;Organisations must register and their are detailed procedures, that the FCA can refuse registration
4. Enforcement;These powers involve the right to enter and inspect premises and take copies of any relevant documents
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If directors or partners are personally responsible for failure to comply with money laundering regulation how may they be fined
They may be imprisoned for up to 2 years or may pay up an amount not exceeding the statutory maximum.They won't be liable for a civil penalty
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What is defined as an appropriate civil penalty
This is being defined as being effective,proportionate and dissuasive
263
What is the definition of financial crime
This is defined as fraud, dishonesty,misconduct or misuse of information relating to a financial market or handling the proceeds of crime
264
How does the FSA measure breaches of its own rules
It measures by the standard set down by the Joint Money Laundering Steering Group(JMLSG)
265
At least how many times must the Money Laundering Report Officer make a report
The MLRO should make a report at least annually, on the how the systems and controls operate and how effective they are
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What are the responsibilities of a money laundering reporting officer
1. Take responsibility for the firm's compliance with the rules concerning the systems and controls that must be in place to combat money laundering
2. Act as the focal point for all the firm's anti-money laundering activities
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what is expected for the Money laundering reporting officer
1. They are expected to be based in the UK
2. Required to have a certain level of authority and independence in the firm
3. required to have sufficient resources and information to enable them to fulfill their responsibilities
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Any one who suspects that money laundering is taking place should report to
They should report to the Money Laundering Reporting Officer, who will then decide whether the suspicious transaction should be reported to the National Crime Agency(NCA)
269
How do they aid the detection of money laundering
They aid by protecting the person who reports their suspicion. There names will be concealed and they will not be called upon to give evidence.However the NCA will need to know who they are so as to obtain further information
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The Joint Money Laundering Steering Group states that client verification for individuals should be
Valid passport, valid photo card driving license,National Identity Card for non-UK,firearm certificate or shotgun license,identity card issued by the Electoral Office for Northern ireland
271
The Joint Money Laundering Steering Group states that client verification for company should be
Its full name, registered number, registered office in country of incorporation and business address and check if it legally exists for normal business operation
272
What should be obtained first before transaction
Proof of identity
273
Although General Insurance and intermediaries are not subject/directly impacted to Money Laundering regulations
General Insurance and intermediaries are subject to high level rules and in particular SYSC, which contains aint-money laundering measures as specific requirements.
Employees are also individually subject to terms of Proceeds of Crime Act and Criminal Justice Act
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Bribery Act of 2010
this one of the most far-reaching acts, relating to improper payments, it applies to all commercial organisations
275
What are the four criminal offenses the Bribery Act 2010 created
1. giving promising or offering a bribe
2. requesting, agreeing to receive or accepting a bribe
3. bribing a foreign public officer
4. failure by a commercial organisation to prevent active bribery being commited on its behalf
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The EU Gender Derivative affected which insurances
It affected motor insurance to life insurance, critical illness and income protection and health insurance
