Chapter 12

Question 1

What is the role of the PRA?

Answer 1

Responsible for the prudent regulation of financial institues such as banks and insuerers, that are significant to the whole economy of the UK. Autorises insurers and regulates them for prudential requirements (e.g how much capital they have/ how solvent they are).

Whilst not all failsures can be prevented, it aims to ensure that firms can fail without bringing down the entire financial system.

Question 2

The PRA has 3 main objectives, what are they?

Answer 2

1) promote safety and soundness of the firms i regulates
2) contribute o the securing of an appropriate degree of protection for insurace policyholders
3) facilitate effective competition

Question 3

What is the FCA

Answer 3

Financial conduct authority - an independant regulator, responsible for the conduct of business and market issues for all firms and for the prudential regulation of small firms such as brokerages and financial advisory firms.
In order to conduct business, insurance brokers and intermediaries must be authorised to do so by the FCA with some exceptions.
FCA is responsible for FOS and FSCS

Question 4

THE FCA has 3 operational objectives, what are they?

Answer 4

1) Consumer protection: securing an appropriate degree of pretection for consumers
2) Integrity: protecting and enhancing the integrity of the UK financial system
3) Competition: promoting effective competition in the interest of consumers

Question 5

Each financial year, every authorised company must submit what reports to their regulator?

Answer 5

• Solvency & financial condition report (SFCR) - this is a public report
• Regulator supervisory report (RSR) this is a private report between a firm and its supervisor

Question 6

In addition to the SFCR & RSR reports, the PRA requires a number of other reports such as what?

Answer 6

• Balance sheets
• Reinsurance
• Technical provisions
• Risk profile
• System governance

Question 7

All authorised intermediaries must complete what for the FCA?

Answer 7

RMAR: retail mediation activities return. This gives the FCA information it needs to supervise the intermediary and monitor its financial soundness.

Question 8

Firm must submit a complaints return online within how many days of their accounting reference dates?

Answer 8

30

Question 9

What are the 12 principles for business?

Answer 9

• Integrity
• Skill, care and diligence
• Management and control
• Financial prudence
• Market conduct
• Consumers interests
• Communications with clients
• Conflicts of interest
• Customers: relationships of trust
• Clients assets
• Regulations with regulators
• Consumer duty

Bold = PRA only

Question 10

What is the SYSC?

Answer 10

A section of the FCA handbook whch focuses on the most senior inividuals who hold key role or have overall responsibility for whole areas in a firm

Question 11

What is the training and competence sourcebook?

Answer 11

A section of the FCA hanbook which deals with how those carrying out regulated activities should be competentand trained to ensure and maintain that competence

Question 12

What is DISP?

Answer 12

A section of the FCA handbook that covers how the FCA requires complaints to be handled

Question 13

What 4 concequences can the FCA bring about to discipline firms and individuals?

Answer 13

Public censure a public statement of misconduct is made where a financial penalty is considers inappopriate or insufficient on its own
Financial penalties size is based on offence and whether it was deliberate or reckless.
Prosecution for a criminal offence e.g carrying out a regulated activity without being authorised to do so
Civil and less formal penalties such as withdrawing authorisation or prohibiting an individual from carrying out certain activities.

Question 14

What does ‘competent’ mean in the FCA SYSC handbook?

Answer 14

Someone must have the skills, knowledge and expertise they need to do the job that they are employed to do and have a good standard of ethical behaviour

Question 15

‘Competent’ reference in the FCA handbook should not be confused with key performance indicatoris (KPIs) which is what?

List an exampl eof a KPI

Answer 15

about performance delivery and is influenced by:
- having competent staff
- having effective processes
- the availability of the resources
- workflow
- use of telephone and IT systems

All calls to be answered within 20 seconds

Question 16

Once deemed competent, maintaining competence must take account of what 3 things?

Answer 16

• technical knowledge and its application
• skills and expertise
• changes in he market and to products, legislation and regulation

Question 17

What is ICOBS?

Answer 17

Insurance: conduct of business sourcebook

the rule book that applies specifically to the sales and administration process for general insurance, including that carried out by intermediaries

Question 18

What do the ICOB rules apply to?

Answer 18

The sales and administration process for general insurers and to the intermediary who is in contact with the customer
This includes a firms appointed representatives in the following particular activities:
* Insurance distribution activity
* effecting and carrying out contracts of insurance
* managing the UW capacity of a lloyds syndicate as a managing agent at lloyds
* communicating or approving financial promotions

Question 19

Where it is unclear which category (commercial customer or consumer) a customer falls into, how much they be treated?

Answer 19

as a consumer

Question 20

How must a customer who is acting both as a consumer and commercial customer be treated?

Answer 20

as a commercial customer

Question 21

Putting the fair treatment of customers into the heart of a company’s business means it must be considered throughout the product life cycle - which includes what?

Answer 21

• desigining the product and how it will be administered
• deciding who the target market is
• how the product is to be marketed and promoted
• who it will be sold and what the advice processes will be
• designing and delivering the after sales information
• how many complaints will be handled

Question 22

What are the 6 consumer outcomes?

Answer 22

1) Consumers can be confident that 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 indentified consumer groups and are targeted accordingly
3) Consumers are provided with clear information and are kept appropriatley informed before, during and after a sale
4) Where consumers recieve 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 thr associated service is of an acceptable standard as as they have been led to expect
6) Consumers do not face unreasonable post sale barriers imposed by firms to change product, switch providerm submit a claim or make a complaint.

Question 23

The FCA has identified 6 critical areas of management behaviour that can influence a firms culture of customer treatment, what are they?

Answer 23

1) Leadership practices and communication should make it clear that the fair treatment of customers is fundamental to the firms operation
2) Strategy a firm can articulate a clear vision featuring fair treatment of customers
3) Decision making decisions should reflect on the fair treatment of customers and feedback from internal/ external sources should be used.
4) Recruitment, training and competence staff selection and training should reflect the importance of customer treatment to the firm - firms should reward good staff performance and act of poor performance
5) Reward the firms reward framework should be transparentm recognise good wuality and support the fair treatment of customers. There should not be a concentration on sales, volumes or profit
6) Controls a firm should have controls that reflect the fair treatment of customers and should be integral to the firms risk framework.

Question 24

The consumer duty aims to raise standards in regulated firms and help prevent some harm from happening.

What are some exmaples of what the duty requires from firms?

Answer 24

• end rip of charges and fees
• make it as easy to switch or cancel products as it was to take out in the first place
• provide helpful and accessible customer support (not making people wait so long that they hang up and give up)
• provide products and services that are right for their customers
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances

Question 25

The practices that the FCA sees in the market that cause consumer harm include what examples?

Answer 25

• information that is misleadingly presented or difficult to understand, making it hard to properly assess the product/ service
• products and services that are not fit for purpose i.e do not deliver benefits that are reasonably expected or are not appropriate for the consumers that they are supposed to be for
• Products that are not fair value because the benefits are not reasonable for the price that is paid
• poor customer service that makes it harder for consumers to take timely action to manage their financial affairs and make use of products/ or makes it more expensive for them to do so
• other practices that make it harder for a consumer to act

Question 26

What are some examples of harm being caused to consumers?

they may:

Answer 26

• find it harder to make an informed decision in good time
• buy products that dont match their needs
• find they have to spend more money or they incur other costs
• recieve treatment from a firm that is below an acceptable standard
• find it difficult to change products or get a better deal

Question 27

What is the consumer duty?

Answer 27

• Consumer principle that provides overarching standard of conduct
• Cross cutting rules
  Firms must take all reasonable steps to:
  -avoid causing forseeable harm
  -enable customers to pursue their financial customers
  -act in good faith towards customers
• 4 outcomes that set clear expectations for an organisations culture and conduct

Question 28

What are the 4 outcomes of the consumer duty?

Answer 28

1) Communications
2) Products and services
3) Customer service
4) Price and value

Question 29

What are 3 key issued for vulnerable customers?

Answer 29

• the products available
• poor interactions with staff
• inflexible systems

Question 30

The FCA has identified some of the needs for vulnerable customers, what are they?

4

Answer 30

• Better disclosure practices
• More flexibility and space for judgement to be used by staff
• Straightforward and clear information
• Trust that an organisation will act in their best interests

Question 31

What areas should organisations take action in to make sure that they are treating vulnerable customers fairly?

Answer 31

• Understanding the needs of vulnerable customers
  -Drivers of vulnerability
  -impact of vulnerability
  -effect on outcomes
• Skills and capacibility of staff
  -understand role
  -can recognise and respond
  -supported
• Taking practical action
  -product and service design
  -customer service
  -communications

& monitoring/ evaluation

Question 32

define access

Answer 32

the ability of consumers to engage with and use the financial products and services over their lifetime

Question 33

FCA identifies difficulties with access fall into what 3 areas?

Answer 33

• process requirements and eligibility - e.g over 65 charged additional premiums or declined cover
• market navigation and comprehension - poor internet connection in rural areas
• physical and digital barriers - no driving lisence or passport

Question 34

what 3 rules as in the FCAs signposting service?

re travel insurance

Answer 34

• firms are required to signpost certain consumers with PEMCs to a directory of speciliast providers
• firms selling travel insurance where a PEMC is excluded should tell customers if it can be removed and if so, how. this is for both new and existing customer and those with annual packaged bank accounts
• firms must assess the risk associated with the medical conditions and calculate the medical condition premium using reliable information that is relevant to the assessment of the risk