Chapter 10 Flashcards
Pra Prudential regulation authority
Systemically important, financially institutions such as banks, building societies and insurers, it will not seek to prevent all firm failure but seeks to ensure that firms can fail without bringing down the entire finance system
FCA Financial conduct
Authority
is responsible for conduct of business and market issues for all firms including insurers, and prudential
regulation of small firms E.G insurance broker and financial advisory firm) the FCA is focused on taking action
early in order to protect consumers
FPC (Financial policy committee
FPC- within the bank of england is responsible for monitoring emerging risk to the uk financial system as a
whole and providing overall strategic direction for the entire regulatory regime
Under the bank of England and financial service act 2016 became part of the bank of England and a new
prudential regulation committee PRC was established
What are the secondary objectives of the PRA
- Ensuring PRA regulated firms avoid adverse effects on the stability of the UK financial system
- Minimising the adverse effect a failure of a PRA regulated firm would have on the UK financial system
- Facilitate effective competition between firms
Describe what threshold conditions means
The requirements that firms must meet to be permitted by the PRA to carry on regulated business
What are the PRA’s threshold conditions?
A firms head office and “mind and management” must be in the UK
The firm to conduct business “in a prudent manner” and maintain the “appropriate and adequate” financial resources
The firm to be “fit and proper” and appropriately staffed
The firm is capable of being effectively supervised
What is the FCA’s primary statutory objective?
Protect and enhance confidence in the UK financial systems
What are the 3 operational objectives of the FCA?
- Secure an appropriate decree of protection for consumers
- Protect and enhance the integrity of the UK financial system
- Promote competition in the interests of consumers
In what 2 categories does the FCA place firms?
Fixed portfolio and flexible portfolio
What do the FCA Handbook and PRA Rulebook set out?
Principles for Businesses (PRIN)
There are 11 in total - the FCA apply all 11 but the PRA only apply 8
What does the FCA expect firms to embed in their culture and strategy?
Fair treatment of customers
What should an insurer do to ensure the fair treatment of consumers?
Deliver the FCA’s six positive consumer outcomes
What do the FCA and PRA say individuals in senior management or certified positions must be?
fit and proper
How do the FCA and PRA deem if an individual is fit and proper?
Test their:
- Financial soundness
- Integrity, reputation, and honesty
- Capability and competence
What statute lists “protected disclosures” protecting whistle blowers
Public Interest Disclosure Act 1998
What statute imposes the FCA and PRA regulations on financial firms?
Financial Services Act 2012
Who should a UK based insurer wishing to conduct business in the EU seek authorisation from?
Prudential Regulatory Authority (PRA)
What does ICOBS stand for?
Insurance: Conduct of Business Sourcebook
Define solvency margin
The amount by which assets must exceed liabilities
What are the 3 pillars of Solvency II?
- Capital adequacy
- Systems of governance
- Supervisory working
Under pillar 1 of Solvency II, what is the Minimum Capital Requirement (MCR)
The capital required to give 85% confidence that assets will cover liabilities in the next year
Under pillar 1 of Solvency II, what is the Solvency Capital Requirement (SCR
The capital required to give 99.5% confidence that assets will cover liabilities in the next year
Placement
there is the process of putting cash into financial system and converting it into other financial
assets such as cheques or even property
Laying
- it may still be possible to trace the money back to its illegal origins so the criminal will want to get
involved in laying. To conceal the origin of the money they will create a series of complex transactions. This is
layering. This may include fun transfers overseas or trading in stock or futures
Integration
is where the criminal finally gets assess to the money. There are many ways of giving the
impression of something legitimate. The replacement of stock and its sales to the public is one example. Often
much more sophisticated methods are use. Buying property and leasing it or creating a company and drawing a
salary are just two examples
Proceed of crime act 2002
established a number of offences around the handling of criminal property and
reporting of money laundering. Firms must take all practical measure to check the identity of new clients
Supervision model
Proactive – pre-emptive identification of harm through review and assessment of firms
and portfolios: this includes business model analysis and reviewing the drivers of culture.
• Reactive - dealing with issues that are emerging or have happened to prevent harm
growing.
• Thematic – wider diagnostic or remedy work where there is actual or potential harm
across a number of firms
FCA
It has three operational objectives:
• Consumer protection: securing an appropriate degree of protection for consumers.
• Integrity: protecting and enhancing the integrity of the UK financial system.
• Competition: promoting effective competition in the interests of consumers
Threshold Conditions
The Threshold Conditions are the minimum requirements that firms must meet in order to be
permitted to carry on regulated activities. The PRA is responsible for those Threshold
Conditions designed to promote safety and soundness
PCA
The PRA has two primary objectives:
• To promote the safety and soundness of the firms it regulates.
• Specific to insurance firms, to contribute to ensuring that policyholders are appropriately
protected.
It also has one secondary objective:
• To facilitate effective competition in the markets for services provided by PRA-authorised
firms
What happens if a firm below below the minimum capital requirement outlined in Solvency II?
They have a short period of time to recover their position. If they cannot they made be forced to stop trading
What discipline and enforcement actions are available to the regulators?
- Public censure
- Financial penalties
- Criminal prosecution
- Civil action (eg injunctions or withdrawal of approval)
When does an insurer need to ensure they are treating their customers fairly?
During the whole lifecycle of a policy
Who is responsible for regulating the UK’s financial services industry?
Financial Conduct Authority (FCA)
Prudential Regulation Authority (PRA)
What is SYSC?
Senior management arrangements, systems and
controls
we will focus on a few key areas of the senior management
arrangements, systems and controls (SYSC) section of the FCA Handbook, including:
• the Senior Managers and Certification Regime (SM&CR), which has replaced the
Approved Persons Regime (APER); and
• requirements around whistle-blowing, in line with the Public Interest Disclosure Act
1998 (PIDA)
What are the key sections of the senior management arrangements, systems and controls (SYSC)
the Senior Managers and Certification Regime (SM&CR), which has replaced the
Approved Persons Regime (APER); and
• requirements around whistle-blowing, in line with the Public Interest Disclosure Act
1998 (PIDA)
What is RMAR
Retail mediation activities return For small retail firms a set of detailed guidance notes has been produced by the FCA
What three key pillars make up the Senior Managers and Certification Regime (SM&CR
- Senior Managers Regime.
- Certification Regime.
- Conduct Rules
Public Interest Disclosure Act 1998 (PIDA
The Public Interest Disclosure Act 1998 (PIDA ) concerns ‘whistle-blowing’, which is the
public allegation of a firm’s concealed misconduct, usually from within the same
organisation
Define money laundering
Money laundering is the process by which criminals and terrorists convert money that has
been obtained illegally into legitimate fund
What is PI
Professional indemnity. The firm has to supply details of its Professional indemnity insurance, including details of the insurer policy number ams excess
Serious crime act 2015
The serious crime axt 2015 gave effect to a number of legislative proposals relating to serious and organised crime.
Bribery act 2010
Is one of the most far reaching acts relating to improper payment the range of offences under the act is extremely wide
