Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CII IF1 > Chapter 10: Statutory Regulations > Flashcards

Chapter 10: Statutory Regulations Flashcards

1
Q

Who is responsible for regulating the UK’s financial services industry?

A

Financial Conduct Authority (FCA)

Prudential Regulation Authority (PRA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the primary objective of the Prudential Regulation Authority?

A

Promote the safety and soundness of the firms it regulated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the secondary objectives of the PRA?

A
  1. Ensuring PRA regulated firms avoid adverse effects on the stability of the UK financial system
  2. Minimising the adverse effect a failure of a PRA regulated firm would have on the UK financial system
  3. Facilitate effective competition between firms
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the insurance specific objective of the PRA?

A

To secure an appropriate degree of protection for policyholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Describe what threshold conditions means

A

The requirements that firms must meet to be permitted by the PRA to carry on regulated business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the PRA’s threshold conditions?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the FCA’s primary statutory objective?

A

Protect and enhance confidence in the UK financial systems

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the 3 operational objectives of the FCA?

A
  1. Secure an appropriate decree of protection for consumers
  2. Protect and enhance the integrity of the UK financial system
  3. Promote competition in the interests of consumers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

In what 2 categories does the FCA place firms?

A

Fixed portfolio and flexible portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the different between fixed and flexible portfolio terms?

A

Fixed portfolio have a named FCA supervisor in frequent contact whereas flexible firms receive less contact from the FCA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the PRA’s framework called and what is it based on?

A

The Proactive Intervention Framework, made up of five stages based on the PRA’s judgement about the firm’s proximity to failure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What do the FCA Handbook and PRA Rulebook set out?

A

Principles for Businesses (PRIN)

There are 11 in total - the FCA apply all 11 but the PRA only apply 8

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does the FCA expect firms to embed in their culture and strategy?

A

Fair treatment of customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When does an insurer need to ensure they are treating their customers fairly?

A

During the whole lifecycle of a policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What should an insurer do to ensure the fair treatment of consumers?

A

Deliver the FCA’s six positive consumer outcomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What do the FCA and PRA say individuals in senior management or certified positions must be?

A

Fit and proper

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How do the FCA and PRA deem if an individual is fit and proper?

A

Test their:

  1. Financial soundness
  2. Integrity, reputation, and honesty
  3. Capability and competence
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What two tiers of conduct rules do the regulators apply?

A

Individual - apply to most employees

Senior Manager - apply to senior managers (hence the name)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What statute lists “protected disclosures” protecting whistle blowers?

A

Public Interest Disclosure Act 1998

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What discipline and enforcement actions are available to the regulators?

A
  1. Public censure
  2. Financial penalties
  3. Criminal prosecution
  4. Civil action (eg injunctions or withdrawal of approval)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What statute imposes the FCA and PRA regulations on financial firms?

A

Financial Services Act 2012

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Who should a UK based insurer wishing to conduct business in the EU seek authorisation from?

A

Prudential Regulatory Authority (PRA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What does ICOBS stand for?

A

Insurance: Conduct of Business Sourcebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What legislation deals with capital reserves for insurers?

A

Solvency II (2016)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Define solvency margin

A

The amount by which assets must exceed liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are the 3 pillars of Solvency II?

A
  1. Capital adequacy
  2. Systems of governance
  3. Supervisory working
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Under pillar 1 of Solvency II, what is the Solvency Capital Requirement (SCR)?

A

The capital required to give 99.5% confidence that assets will cover liabilities in the next year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Under pillar 1 of Solvency II, what is the Minimum Capital Requirement (MCR)?

A

The capital required to give 85% confidence that assets will cover liabilities in the next year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What happens if a firm falls below the solvency capital requirement outlined in Solvency II?

A

They trigger the “ladder of intervention” and have to work to recover their position within a set time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What happens if a firm below below the minimum capital requirement outlined in Solvency II?

A

They have a short period of time to recover their position. If they cannot they made be forced to stop trading

31
Q

How can a firm calculate it’s capital requirements under Solvency II?

Bonus: What is the role of the PRA?

A
  1. Standard formula
  2. Specific parameters - tweak the formula to fit their business
  3. Internal model - their own full or partial model allowing a more tailored assessment for complex firms

Bonus: 2 and 3 require approval from the PRA

32
Q

How is an insurer’s solvency monitored?

A

The insurer must report yearly to the Prudential Regulatory Authority (PRA)

33
Q

What powers of intervention does the PRA have with insurers?

A
  1. Restrict premium income
  2. Stop new business
  3. Submit more information, or more frequently
  4. Restore it’s capital position
  5. Withdraw authorisation
  6. Ultimately, force to wind-up operation
34
Q

Is an appointed representative regulated by the FCA?

A

No - they are exempt because the principal is responsible for their activities. However the principal does need to be FCA regulated

35
Q

What does ICOBS say an insurer’s financial promotions must be?

A

Fair, clear, and not misleading

36
Q

What does exclusion of liability mean?

A

Although it is allowed to delegate tasks, it is not possible to contract out of regulatory requirements. The insurer is still liable for the delegate not meeting regulatory requirements

37
Q

What does the Distance Marketing Directive do?

A

Impose rules to protect customers who have purchased an insurance policy long distance and not face to face (eg over the phone or online)

38
Q

What does ICOBS say about cancellation rights?

A

Consumers (not commercial customers) get a 14 day cooling off period in which to cancel for most general insurance policies. Cancellation rights do not apply to short term policies less than 30 days

39
Q

Who does ICOBS say is responsible for claims handling?

A

The insurer, whether undertaken themselves or delegated/outsourced

40
Q

When does ICOBS say a claim needs to be paid?

A

“Within reasonable time”

41
Q

What statute governs the rules about money laundering in insurance?

A

Proceeds of Crime Act (POCA) 2002

42
Q

Define money laundering

A

The process of concealing funds obtained illegally to make it appear they were obtained from a legal source

43
Q

What are the three stages of money laundering?

A
  1. Placement
  2. Layering
  3. Integration
44
Q

What is placement?

A

Stage one of money laundering. Depositing illegally obtained funds and converting them into other assets

45
Q

What is layering?

A

Stage two of money laundering. Concealing the origin of the funds/assets

46
Q

What is integration?

A

Stage three of money laundering. Converting the assets back into cash, now “clean” from a legitimate source

47
Q

What is a simple, common way the insurance industry could be used for money laundering?

A

A policy will be taken out using illegal funds, then cancelled shortly after. The return premium appears to be “clean” money

48
Q

What law makes it illegal to assist in or not to report suspicions of money laundering?

A

Criminal Justice Act 1993

49
Q

What organisation oversees the prevention of money laundering in the UK?

A

National Crime Agency (NCA)

50
Q

What does the FCA require firms to have in order to combat financial crime?

A

Money Laundering Reporting Officer (MLRO)

51
Q

What do the FCA requirements for the MLRO say?

A
  1. Based in UK
  2. Required to have adequate resources and information
  3. Have a certain level of authority
52
Q

What is the MLRO responsible for?

A

Establishing and maintaining effective anti money laundering controls for their firm

53
Q

What statute governs the rules around bribery?

A

Bribery Act 2010

54
Q

What does the Proceeds of Crime Act 2002 empower authorities to do?

A

Seize assets that they believe are the proceeds of crime

55
Q

How do firms return required information to the FCA?

A

Completion of a Retail Mediation Activities Return (RMAR) submitted via an online system called GABRIEL

56
Q

How often may large firms be required to complete an RMAR?

A

Quarterly

57
Q

What must be included in an RMAR under accounting information?

A

Profit, loss, balance sheets, assets and liabilities

58
Q

How long must proof of identity be kept?

A

Five years

59
Q

Who does the FCA report to and how often?

A

Government and parliament, annually

60
Q

There is a regulatory failure due to the FCA’s actions. Who does the FCA make a report to?

A

The treasury

61
Q

What statute requires insurance professionals to to undertake continual professional development/training, and how many hours must they undertake each year?

A

Insurance Distribution Directive 2016. 15 hours per year

62
Q

If a director or partner is found to be personally responsible for failure to comply with money laundering regulations, what penalty could be imposed on them?

A

Imprisoned for up to 2 years or fine (up to statutory maximum) or both

63
Q

Client verification can be completed using what documents?

A

Valid passport, driving licence, national identity card or firearms licence

64
Q

The FCA requires insurance intermediaries to have professional indemnity insurance. What limits are they required to have?

Hint: For a single claim and in aggregate

Bonus: The limits are in euros. Why?

A

Single claim = 1.25 million euros

In aggregate = Either 1.85 million euros OR 10% of their annual income capped at 30 million euros (whichever is higher)

Bonus: Because the requirement comes from an EU directive - the Insurance Distribution Directive (IDD)

65
Q

What is the difference between the PRA and the FCA?

A

The PRA is responsible for stability and resolvability (solvency) of important financial firms, including insurers. Generally the PRA is concerned with large institutions

The FCA is responsible for the conduct and market business of all firms, including insurers. The FCA is also responsible for the prudential regulation of small firms (eg insurance brokers)

66
Q

What is SYSC?

A

Senior Management Arrangements, Systems and Controls

Section of the FCA handbook

67
Q

What are the key sections of the senior management arrangements, systems and controls (SYSC)?

A
  1. Senior Managers and Certification Regime (SM&CR)
  2. Whistle blowing requirements (Public Disclosure Act 1998)
  3. Threshold conditions
  4. Fit and proper test
68
Q

What three key pillars make up the Senior Managers and Certification Regime (SM&CR)?

A
  1. Senior Managers Regime - Senior management functions (SMF) must be approved by the regulators
  2. Certification Regime - Firms are required to assess if people appointed to roles capable of causing significant harm (but do not fall under SMF) are fit and proper
  3. Conduct rules - individual applying to most employees and senior manager applying to senior managers
69
Q

How are Senior Management Functions (SMF) approved?

A

Applications are made to the regulators for approval

Applications consist of a Statement of Responsibilities (SoR) including the appropriate Prescribed Responsibilities set out by the FCA, along with their CV, development plan, job description and organisation/management/reporting chart

70
Q

What is reported to the FCA in an RMAR?

A
  1. Accounting information - profit loss, balance sheet, assets, liabilities. Income of appointed representatives and how much/where they hold client money
  2. Regulatory capital - buffer against difficult trading conditions
  3. Details of their professional indemnity insurance
  4. Threshold conditions compliance
  5. Training and competence - number of staff that give advice and their supervisors
  6. Conduct of business data - what their core business is and the number of ARs/how they monitor them
  7. Product sales data - data on product sales for FCA market research
  8. Calculation of fees - income from regulated activities to calculate fees owed to the FCA
71
Q

The PRA uses a judgement-led approach. What does this mean?

A

A forward looking analysis about how likely a firm is to fail and what would happen if it did with the aim to pre-empt risks

72
Q

What are the 3 pillars of the FCA’s conduct risk framework?

A
  1. Firm Systematic Framework - Analysis of how fair treatment of customers is embedded in the business model and strategy
  2. Event-driven work - Supervision in response to emerging or recent issues
  3. Issues and products - Thematic reviews and feedback on issues and products
73
Q

How can an insurer calculate its Enhanced Capital Requirement (ECR)?

A

Add together:

  1. Asset related requirement - a percentage of assets
  2. Insurance related requirement - percentage of premiums and claim reserves (determined by LoB)

Minus an allowance for an equalisation provision (amounts set aside by the insurer to smooth fluctuations from year to year)

CII IF1 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions