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M80 Underwriting Practice > Chapter 1: The Regulatory Environment > Flashcards

Chapter 1: The Regulatory Environment Flashcards

1
Q

What is FSMA and what did it establish?

A

Financial Services and Markets Act 2000. This established a regulatory body for the financial services industry, including insurance.

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2
Q

Which act amended FSMA and how?

A

Financial Services Act 2012, this gave the responsibility of regulation to the FCA & PRA

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3
Q

What is the FPC and what are they responsible for?

A

Financial Policy Committee. They sit within the Bank of England are are responsible for monitoring risks to the UK financial system and providing overall strategic direction for the regulatory regime.

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4
Q

Which of the FCA and the PRA are part of the Bank of England

A

PRA

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5
Q

True or False, the FCA are responsible for promoting the stable and prudent operation of the UK financial system

A

False. It’s the PRA

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6
Q

Who are the PRA the UK’s prudential regulator for?

A

Banks, building societies, insurers, major investment firms & the society of Lloyd’s

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7
Q

Who are the FCA accountable to?

A

HM Treasury & Parliament

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8
Q

What are the FCA responsible for?

A

The regulation of conduct in retail, as well as wholesale, financial markets as well as the infrastructure which supports those markets

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9
Q

True or False, the FCA also has responsibility for the conduct of the Society of Lloyd’s?

A

True

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10
Q

What is the statutory objective of the Bank of England?

A

To protect and enhance the stability of the financial system of the UK

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11
Q

Does the FPC have the power to make recommendations and give directions to the FCA or the PRA?

A

Both. The FPC have powers to recommend and direct the PRA & FCA in addressing systemic risks. Such as Covid BI claims etc. big risks that could bring a lot of people down

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12
Q

When was insurance first regulated and who by?

A

2005 by the FSA in accordance with FSMA 2000

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13
Q

Why was the FSMA 2000 created?

A
  • Customers were being treated unfairly
  • Insurers regularly went bankrupt
  • Training staff was optional and often ignored
  • Insurers didn’t even have to be members of the FOS
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14
Q

Who are the 3 regulators?

A

FPC, PRA & FCA

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15
Q

True or False, the CEO’s of FCA & PRA form part of the FPC board?

A

True

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16
Q

If there was a conflict between the FCA and the PRA, who has the ultimate power?

A

PRA

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17
Q

Do the PRA use a judgement based approach or rule based approach?

A

Judgement based approach, leaving firms create their own journey

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18
Q

Key things the PRA are looking for?

A
  • Ensuring firms have sufficient capital to meet any huge losses
  • Ensuring firms are well capitalised and have spare capital available
  • Make sure firms are reserving correctly
  • Ultimately trying to ensure they have ringfenced enough capital that claims will still be payed. Not trying to prevent insurers going bankrupt
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19
Q

Do the PRA or the FCA have to agree director appointments within insurers?

A

PRA

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20
Q

Is it the PRA’s responsibility to review fraud?

A

No. They will just inform other bodies

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21
Q

If you were to set up a new insurer, would you have to be signed off by the PRA or the FCA?

A

Both

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22
Q

Who has the overall responsibility to protect and enhance the stability of the UK financial system?

A

Bank of England

23
Q

What is the strategy of the FCA?

A

To ensure the relevant markets function well

24
Q

Is crime part of the FCA’s agenda?

A

Yes. The FCA oversees the conduct of its members, including preventing firms from facilitating crimes

25
Q

Within which regulators remit is ensuring the correct selling of products?

A

The FCA ensures the correct selling of products – this includes being able to ban products without consultation for up to twelve months and stop misleading marketing. Don’t require any evidence to ban things. Up to 12 months to prove their case.

26
Q

What are the three objectives of the PRA?

A
  • To promote the safety and soundness of the firm it regulates
  • To contribute to the securing of an appropriate degree of protection for those who are/may become policyholders
  • To facilitate effective competition
27
Q

True or False, the PRA operates a zero-failure regime?

A

False. The PRA does not operate a zero failure regime, but will seek to ensure that firms may fail without causing serious instability to the financial system.

28
Q

Does the PRA regulate insurance brokers?

A

No. The PRA essentially regulates any institution which accepts deposits or issues insurance contracts.

29
Q

What are the three objectives of the FCA?

A
  • To promote effective competition in the interests of consumers
  • To secure an appropriate degree of protection for consumers
  • To protect and enhance the integrity of the UK financial system
30
Q

Who is responsible for the Financial Ombudsman Service (FOS), Money Advice Service (MAS) and the Financial Services Compensation Scheme (FSCS)?

A

The FCA

31
Q

The PRA assesses whether an insurer has in place adequate measures to safeguard its safety and soundness and appropriate policyholder protection in light of risks which an insurer poses to the PRA’s objectives. What are these 5 objectives?

A
  • Management and governance
  • Culture and competence
  • Risk management and controls
  • Financial resources (such as capital adequacy)
  • Resolvability
32
Q

How many categories of potential impact does the PRA have?

A

Five

33
Q

When did Solvency II come into place?

A

January 2016

34
Q

What are the objectives of Solvency II?

A
  • Greater risk awareness in governance and operations
  • Deeper integration of the EU insurance market
  • Enhanced policy protection
  • Improved competitiveness of EU insurers
35
Q

What are the key features of Solvency II?

A
  • Forward-looking and risk based solvency requirements
  • The requirement that insurers hold capital against a range of risks, not just insurance risks
  • A total balance sheet type of regime
  • Consideration of all risks and their interactions
  • The requirement that insurers identify, measure and proactively manage risks
  • Introduction of Own Risk and Solvency Assessment (ORSA)
  • A supervisory review process
  • Greater reporting and public disclosure requirements
  • A strengthened role for the group supervisor
36
Q

Under the PRA, FIRMS must;

A

Have sufficient controls to minimalise excessive risk taking

37
Q

Under the PRA, INSURERS AND INDIVIDUALS must;

A

Behave in an open and co-operative manner

38
Q

Under the PRA, an INSURERS BOARD must;

A

take responsibility for establishing, embedding and maintaining an organisational and operational culture in keeping with regulator expectations

39
Q

What are the three outcomes which the FCA work towards?

A
  1. Consumers receive financial services and products that meet their needs, from firms they can trust
  2. Markets and financial systems are sound, stable and resilient, with transparent pricing information
  3. Firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their business

Simplified; Consumer protection, integrity, competition

40
Q

The FCA’s supervision model is based on three pillars, what are they?

A
  1. Firm Systematic Framework (FSF) - carrying out a structured conduct assessment of firms, does their model have TCF at heart?
  2. Event-driven work - dealing faster with problems that come to their attention
  3. Issues & Products - Fast intensive campaigns on products/sectors that are putting customers at risk
41
Q

What are the 5 principal areas in which the PRA and FCA regulation impacts the underwriting function?

A
  • Principles for Business (PRIN)
  • Training and competence (TC)
  • The fair treatment of customers
  • monitoring and auditing the business
  • complaint and dispute resolution
42
Q

Under TC a regulated firm is expected to ensure 5 things, what are they?

A
  • Employee’s are competent
  • Employee’s remain competent
  • Employee’s are appropriately supervised
  • Employee’s competence is regularly reviewed
  • The level of competence is appropriate to the nature of the business
43
Q

The Insurance: Conduct of Business Sourcebook:

a.
forms part of the PRA Rulebook.

b.
forms part of the FCA Handbook.

c.
applies only to insurers.

d.
applies only to insurance brokers.

A

b.
forms part of the FCA Handbook.

44
Q

The PRA has asked an insurer NOT to double its premium income over the next five years as it regards this as being an unacceptable potential risk. This is an example of:

a.
solvency-based regulation.

b.
category 3 firm supervision.

c.
forward-looking regulation.

d.
dual-regulation.

A

c.
forward-looking regulation.

45
Q

Which UK financial services regulator is primarily responsible for enhancing confidence in the UK financial system and protecting consumers?

a.
The FCA.

b.
The Bank of England.

c.
The FPC.

d.
The PRA.

A

a.
The FCA

46
Q

An authorised firm should carefully record the nature of all complaints:

a.
to identify any trends and systematic issues.

b.
as this will identify any competence issues with staff.

c.
to determine the quality of the firm’s underwriting.

d.
as the FCA might ask for complaints data.

A

a.
to identify any trends and systematic issues

47
Q

If a policyholder has an outstanding buildings insurance claim of £20,000 when their insurer becomes insolvent, what is the maximum compensation payable under the Financial Services Compensation Scheme?

a.
£20,000

b.
£16,000

c.
£18,000

d.
£15,000

A

a.
£20,000

48
Q

What type of financial services firm would be dual-regulated?

a.
A major UK insurer

b.
A high street broker

c.
A Lloyd’s broker

d.
A large UK insurance broker

A

a.
A major UK insurer

49
Q

In an effort to minimise losses, an insurer has instructed its underwriters to include exclusions in its policies that are not standard practice within the industry. Which of the FCA’s six consumer outcomes is this action most likely to breach?

a.
Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

b.
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

c.
Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

d.
Outcome 6: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

A

c.
Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

50
Q

A local high-street insurance broker is likely to be regulated by the:

a.
PRA and FPC.

b.
PRA only.

c.
FCA and PRA.

d.
FCA only.

A

d.
FCA only

51
Q

How often, if at all, can a high street firm of insurance brokers expect to have contact with the regulator as part of a programme of ongoing supervision?

a.
Every two years.

b.
Every four years.

c.
Not at all.

d.
Every year.

A

b.
Every four years.

52
Q

Risk-based supervision can best be described as how a regulator will:

a.
provide different levels of supervision based on the solvency of a firm.

b.
treat all firms the same way.

c.
focus their supervision on firms which pose the most risk to their objectives.

d.
focus primarily on identifying future potential risks.

A

c.
focus their supervision on firms which pose the most risk to their objectives.

53
Q

What are the six consumer outcomes?

A

Outcome 1: Consumers can be confident they are dealing with firms where TCF is central to the culture

Outcome 2: Products/services marketed /sold in the retail market are designed to meet the needs of the consumer and are targeted accordingly

Outcome 3: Consumers are provided with clear information & are kept appropriately informed before, during & after the sale

Outcome 4: Where consumers receive advice, the advice is suitable and considers their circumstances

Outcome 5: Products perform as consumers have been led to believe and the associated service is of an acceptable standard

Outcome 6: Consumers do not face post sales barriers imposed by firms to change product, switch provider, make a claim/complaint

54
Q

Which of the FCA’s principles of business impact a firm’s dealings with its customers?

A

Principle 1: A firm must conduct business with integrity

Principle 2: A firm must pay due regard to the information needs of

M80 Underwriting Practice (3 decks)

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