Chapter 1 Flashcards
What was Regulatory Regime and what was it amended by?
Financial Services & Markets Act 2000 (FSMA) amended by Financial Services Act 2012
Who is responsible for Regulation
Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA)
Who is responsible for monitoring emerging risks to the UK financial system as a whole and providing overall strategic direction for the regulatory regime
Financial Policy Committee (FPC)
PRA responsibilities
- Part of the Bank of England and is responsible for promoting the stable and prudent operation of the UK financial system.
- The UK’s prudential regulator for banks, building societies, credit unions, insurers and major investment firms. (not Brokers)
- Also carries responsibility for the prudential regulation of the Society of Lloyd’s.
PRA Objectives
- a general objective to promote the safety and soundness of the firms it regulates;
- an objective specific to insurance firms, to contribute to the securing of an appropriate degree of protection for those who are or may become insurance policyholders
- a secondary objective to facilitate effective competition.
PRA divides all firms into how many categories?
Category 1Insurers whose size (including number of policyholders) and type of business mean that there is very significant capacity to cause disruption to the interests of a substantial number of policyholders.
Category 2 Significant capacity to cause disruption to the interests of a substantial number of policyholders
Category 3 Minor capacity to cause disruption to the interests of a substantial number of policyholders
Category 4 Very little capacity to cause disruption to the interests of a substantial number of policyholders
Category 5 Almost no capacity to cause disruption to the interests of a substantial number of policyholders
PRA measures what five things?
- Management & Governance
- Culture & Competence
- Risk management and controls
- Financial resources (such as capital adequacy)
- Resolvability.
FCA responsibilities
- Wholly separate from the PRA; responsible for regulation of conduct in retail, as well as wholesale, financial markets and the infrastructure that supports those markets.
- Also has responsibility for the conduct of the Society of Lloyd’s.
- Remit also includes the prudential regulation of firms that do not fall under the scope of the PRA, such as asset managers and insurance brokers.
- Accountable to HM Treasury and Parliament
FCA objectives
Main is to ensure that the relevant markets function well
> Promote effective competition that benefits consumer
> Secure appropriate protection for consumer / Markets are sound & stable
> Protect & Enhance integrity of UK financial system / consumers can trust products meet their needs
Protection & Integrity & Competition
Three pillars of FCA supervision model
Firm Systematic Framework (FSF) - Preventative work through structured conduct assessment of firms. In other words: ‘Are the interests of customers and market integrity at the heart of how the firm is run?’
Event-driven work - Dealing faster and more decisively with problems that are emerging or have occurred, and securing customer redress or other remedial work where necessary
Issues and products - Fast, intensive campaigns on sectors of the market or products within a sector that are putting or may put consumers at risk.
Which other services is the FCA responsible for?
Financial Ombudsman Service (FOS)
Financial Services Compensation Scheme (FSCS)
Does CEO of PRA & FCA sit on each others board?
And what are they both members of?
Yes
Financial Policy Committee (FPC)
The Bank of England overall responsibility is to…
Protect and enhance the stability of the financial system of the United Kingdom
Does the FPC have power to make recommendations/give direction to PRA & FCA
Yes
Bank of England is formed by what 3 Committee
Monetary Policy Committee (MPC)
Prudential Regulation Committee (PRC)
Financial Policy Committee (FPC)
Solvency II objectives
- greater risk awareness in governance and operations;
- deeper integration of the EU insurance market;
- enhanced policy protection;
- improved competitiveness of EU insurers.
What are the two specific principles of the Society of Lloyd’s & who is the lead regulator?
- The Lloyd’s Market should be regulated to the same standard as the market outside of Lloyd’s.
- Supervision of the various entities that constitute the Lloyd’s Market will take place at the level where the risk is managed; this means that the Society of Lloyd’s itself will be supervised in addition to each of the managing agents.
> PRA
Where are Insurance: Conduct of Business Sourcebook (ICOBS) rules found?
FCA handbook because FCA is responsible for conduct.
What areas of underwriting are impacted by FCA and PRA?
- Principles for Businesses (PRIN);
- Training and competence (TC);
- The fair treatment of customers;
- Monitoring and auditing the business;
- Complaint and dispute resolution.
11 Principles of Business (PRIN)
- Integrity
- Skill, care and diligence
- Management and control
- Financial prudence
- Market conduct
- Customers’ interests
- Communications with clients
- Conflicts of interest
- Customers: relationships of trust
- Clients’ assets
- Relations with regulators
Which 4 Principles of business does the PRA apply
- Integrity
- Financial prudence
- Conflicts of interest
- Relations with regulators
What is SMCR and why is it used
Senior Managers Certification Regime
Designed to ensure professional standards and market integrity are maintained within an organisation
Under Training & Competence (TC) a regulated firm (insurer or intermediary) is expected to ensure what?
- employees are competent;
- employees remain competent for the work they do;
- employees are appropriately supervised;
- employees’ competence is regularly reviewed; and
- the level of competence is appropriate to the nature of the business
How can staff training be applied?
> Internal Courses
> Training Academies
> Internal Testing
> External Qualifications
> External Courses
