Chapter 12 Flashcards
Regulatory and legal requirements
What is the role of the PRA?
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.
The PRA has 3 main objectives, what are they?
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
What is the FCA
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
THE FCA has 3 operational objectives, what are they?
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
Each financial year, every authorised company must submit what reports to their regulator?
- 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
In addition to the SFCR & RSR reports, the PRA requires a number of other reports such as what?
- Balance sheets
- Reinsurance
- Technical provisions
- Risk profile
- System governance
All authorised intermediaries must complete what for the FCA?
RMAR: retail mediation activities return. This gives the FCA information it needs to supervise the intermediary and monitor its financial soundness.
Firm must submit a complaints return online within how many days of their accounting reference dates?
30
What are the 12 principles for business?
- 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
What is the SYSC?
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
What is the training and competence sourcebook?
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
What is DISP?
A section of the FCA handbook that covers how the FCA requires complaints to be handled
What 4 concequences can the FCA bring about to discipline firms and individuals?
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.
What does ‘competent’ mean in the FCA SYSC handbook?
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
‘Competent’ reference in the FCA handbook should not be confused with key performance indicatoris (KPIs) which is what?
List an exampl eof a KPI
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
Once deemed competent, maintaining competence must take account of what 3 things?
- technical knowledge and its application
- skills and expertise
- changes in he market and to products, legislation and regulation
What is ICOBS?
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
What do the ICOB rules apply to?
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
Where it is unclear which category (commercial customer or consumer) a customer falls into, how much they be treated?
as a consumer
How must a customer who is acting both as a consumer and commercial customer be treated?
as a commercial customer
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?
- 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
What are the 6 consumer outcomes?
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.
The FCA has identified 6 critical areas of management behaviour that can influence a firms culture of customer treatment, what are they?
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.
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?
- 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
