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
Fair Treatment of Customers - which Principle
- Customers’ interests
This theme is central to the role of the underwriter in
ensuring that the customer is given sound advice
What are the 6 consumer outcomes?
1: Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.
2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
What is the DISP? (Disp…)
Dispute Resolution: Complaints (DISP) section of the FCA Handbook clearly states that any expression of dissatisfaction should be treated as a complaint, and it sets standards for the approach that a firm should follow in dealing with complaints.
What is root cause analysis in relation to complaints?
The nature of all complaints should be carefully recorded and analysed to identify any trends at the earliest possible stage.
What is the Consumer Duty?
A firm must act to deliver good outcomes for retail customers
What is the FSCS?
Financial Services Compensation Scheme
Compensate eligible claimants and policyholders where authorised persons are unable to satisfy claims against them.
Protection is 100% for:
* compulsory insurance (third party motor and employers’ liability);
* professional indemnity insurance;
* long-term insurance (e.g. pensions and life insurance); and
* certain claims for injury, sickness or infirmity of the policyholder
What is defined as an eligible complainant?
- consumer;
- micro-enterprise with fewer than ten employees and a turnover or balance sheet total of no more than €2m*;
- charities with an annual income of less than £6.5m;
- trustees of trusts with a net asset value of less than £5m;
- small businesses with an annual turnover of less than £6.5m and fewer than 50 employees or a balance sheet total of less than £5m;
- guarantors.
*(This value is in euros as ‘micro-enterprise’ is an EU defined term.)
A complainant can refer their complaint to the FOS within the earliest of what?
- six months of the date on the firm’s letter advising the claimant of its final decision regarding the complaint;
- six years after the event complained about; or
- three years after the complainant knew, or should have known, that they had cause for complaint.
FOS must investigate a complaint and answer, within what timeframe?
3 months
What’s the maximum money award the FOS can require a firm to make?
– £375,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms on or after 1 April 2019;
– £170,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms before 1 April 2019.
It can be higher but will be non-binding
Who funds the FOS?
General Levy paid by all firms
Case fee payable by the firm to which the complaint relates
