Chapter 1 Flashcards
What are the name of the 3 bodies made after financial crisis by Financial Services Act 2012
- FCA
- PRA
- FPC
FCA
Conduct of business for all financial firms including intermediaries
FCA’s Objectives
- Ensure relevant markets function well
- Consumer protection
- Integrity
- Competition
What other bodies does the FCA oversee
- Financial Ombudsman Service (FOS)
- Money Advice Service (MAS)
- Financial Service Compensation Scheme (FSCS)
How pillars in FCA’s approach
- Firm systematic Framework
- Conducting event driven work for emerging issues
- Reviewing issues as they happen (products and promotions can be banned by FCA)
RISK BASED APPROACH
PRA objective
Within BOE
Promote safety and soundness of PRA-regulated persons
Firms must meet threshold conditions
What PRA’s threshold conditions for firms to carry out regulated activity
- Head office in UK
- Conduct business in prudent manner
- Adequate resources
- Fit and proper
- Appropriately staffed
PRA
Supervisory framework to see gross risk exposure , what is in place to mitigate
PRA: Judgement based approach
- Forward looking
- Not only insurance firms
- Approach differs for each industry
Insurance Regulators
Dual regulated: PRA + FCA
PRA in Insurance
Focuses on outcomes and adequate measures
- mgmt and governance
- culture and competence (Board takes responsibility)
- Risk mgmt and controls
- Financial resources
- Resolvability
FPC
Emerging and systemic risk
- provide strategic direction to the regulatory set up
How do PRA + FCA impact UW functions (5)
- Principles of business (PRIN)
- Training and competence (TC)
3.Fair treatment of customers - Monitoring and auditing
- Complaint and dispute resolution
FCA Handbook (PRIN) 11 principles
- Integrity
- Skill, care and diligence
- mgmt and control
4.financial prudence - market conduct
- customers interest
- Comms with client
- conflict of interest
- customers - relationship of trust
- client’s assets
- relationship with regs
PRA threshold categories
Cat 1 - 5
1 = significant capacity to cause disruption to large number of policyholders
2 = significant
3 = minor
4 = very little
5 = almost no
PRA solvency requirements
In line with Solvency II which came out Jan 2016
Solvency II objectives (4)
- Greater risk awareness
- Deeper integration of EU insurance market
- Policy protection
- Competitiveness
FCA supervision model
Firm Systemic Framework: structured conduct assessments
Event drive work: Faster and more decisively w/ problems
PRIN 2: Includes training and competence sourcebook
- employees are competent
-remain competent for the work they do
-appropriately supervised - competence regularly reviewed
- competence appropriate to nature of work
What principle in training and competence
PRIN 2 - Due skill, care and due diligence
What principle is fair treatment of customers
PRIN 6 - pay due regard to the interest of its customers and treat them fairly
What are the 6 outcomes
- Fair treatment of customers is central to the corp culture
- Products / services designed to meet needs of identified consumer groups
- Clear info - before, during and after sale
- Suitable advice given
- Products do what they are said to be done
- No un-reasonable post sale barriers inforced to change, switch provider etc
Dispute resolution: Complaints (DISP)
Section in FCA handbook = expression of dissatisfaction should be treated as complaint
Must be recorded, analysed and used for where improvements can be made
Consumer duty - FCA
For all new / existing products and services by end of July 2023 -> Firm must deliver good outcomes for retail consumers
Monitoring and auditing business
PRIN 2 & 3
UW monitoring
- detailed budgets aligned with org corp objectives
- Authority limits
- Claims freq and severity
- Premium comparison
- Sales and renewal volumes
FSCS
- Established under s.212 of FSMA 2000
100% protection for:
- compulsory insurance
- PI
- Long term (pensions, life insurance)
- Certain claims for injury, sickness or infirmity of ph
90% protection of claim with no upper limit for other types of policy
0% protection for directors, managers of defaulting firm
FOS
- Free indpt impartial service deals with individual consumers / small businesses and FI’s
- Membership is compulsory for all firms including intermediaries
Eligible FOS
- Consumer
- Micro-enterprise (<10 employees, turnover <EUR 2m)
- Chairty w/ annual incomes <£6.5m
- Trustee of trust woth net asset value <5m
- Consumer buy-to-let
- Small business annual TO <£6.5, <50 employees, balance sheet total of <£5m
- Guarantor
When can they refer complaint to FOS from
6 months of the date on firm’s letter advising claimant of its final decision regarding complaint
6 years after the event complained about
3 years after complainant knew or should’ve known they had cause for complaint
Maximum FOS awards
£375k about acts after 1st Apr 19
£170k about acts before 1st Apr 19
Directions award FOS
Telling firm what actions that need to done to put things right
How is FOS funded
- Levy paid by all firms
- Case fee payable by firm to which complaint relates to
