Chapter 5: Legal and regulatory issues Flashcards
What are regulated activities?
Arranging
Advising
Dealing
Assisting
What is authorisation?
Prudential regulation - to ensure that firms are financially sound
What is conduct of business?
Conduct of regulation - the relationship between an authorised firm and its customers
What does the FCA focus on when authorising firms?
- Business model (how it makes its money)
- Governance
- Systems and controls
What areas are considered when ensuring the firm supports a good outcome for its customers?
- Corporate culture
- Sales procedure
- Product design
What is a risk based approach?
FCA directs its resources to firms it believes poses the greatest risk to customers
What is the primary objective of a risk based approach?
Consumer protection through the fair treatment of customers
Fixed Portfolio vs Flexible Portfolio
Fixed portfolio - small population firms that based on factors such as size, market presence and customer footprint require the highest level of supervision
Flexible Portfolio - Proactively supervised through a combination of market-based thematic work and programmes with key risks identified
Define the Firm Systematic Framework (FSF)
Assess a firm’s conduct risk
Define Event Driven Work
Supervisory activity in response to issues that are emerging or have recently happened
Define issues and Products
thematic work on sectors of the market or products that are putting or may put consumers at risk.
How do the FCA monitor the regulatory position of firms?
Firms fill out a Retail Mediation Activities Return (RMAR)
How often do firms need to fill out a RMAR?
Small firms (Rev under 5m) = every 6 months 3 months for firms with Rev above 5m
What are the six steps to authorisation?
- Decide on scoop of authorisation
- Understand FCA’s principles for Businesses
- Prepare appropriate business plan
- Calculate minimum financial requirements for the business to operate
- Decide whether the processes, systems, and controls within the firm will meet the FCA’s requirements
- Decide who will be an authorised person
What are the key features of the Seniors Managers Regime?
Focus on most senior individuals that hold a key role or are responsible for whole areas of relevant firms
- Ensure each manager has a statement of responsibilities and introduce a firm responsibility map
- Pre-approved by regulator
- Assessed for fitness and propriety at least once a year
What is the statutory duty of responsibility?
Senior managers required to take steps that are reasonable for a person to prevent regulatory breach from occurring.
Introduced by government to strengthen individual accountability
What are the key features of the certifications regime?
Applies to material risk takers (staff subject go remuneration) and advisors
- FCA no longer approves these individuals, down to the firm
What are conduct rules?
High level rules that apply directly to nearly all staff.
What are the FCA powers?
Withdraw authorisation Discipline individual and firms Imposes penalties Court injunctions (requiring certain action to be stopped) Prosecute
What is public censure?
Issuing public statement of misconduct
What are the principles for business?
- Integrity
- Skill, care, diligence
- Management and control
- Financial prudence
- Market conduct
- Customer’s interest
- Communication with clients
- Conflicts of interest
- Customers: Relationship of trust
- Client assets
- Relationship with regulators
What is the Insurance: Conduct of Business Sourcebook?
Specific actions that should be taken to support the Principles for Businesses
What are the 8 chapters in ICOBS?
- Application (Insurance mediation activities)
- General Matters (Different categories of customer)
- Distance communication
- Information about the firm, it’s services and remuneration
- Identifying client needs and advising (Broker must provide suitability statement
- Product Information
- Cancellation (General insurance 14 days, refund within 30 days)
- Claims Handling
What is competence?
Having skills, knowledge and expertise needed
What are the 3 key areas of training?
Assess, maintain, record
What is financial crime?
Fraud, dishonesty, misconduct, misuse relating to a financial market or handling proceeds of crime
What are the 3 stages of money laundering?
Placement, Layering, Integration
Criminal Justice Act 1993
Criminal offence tipping off a suspect or not report suspicions.
Proceeds of Crime Act 2002
Agency whose purpose is to recover proceeds of crime
Money Laundering Regulation
Created systems to prevent and control money laundering as well as training.
Does the FCA prevent and detect Money Laundering?
Yes
What is the ELTO?
Employers’ Liability Tracing Office:
- easier for employees to search for employers liability insurance policy.
What type of supervision will an insurance broker receive from the FCA as a flexible portfolio firm?
This will be largely regular reporting, thematic or educational work.
Providing product information to clients falls under which regulated insurance mediation activity?
Arranging.
Before a firm prepares a business plan to become an authorised insurance broker, it must decide:
the scope of authorisation and how the FCA’s Principles for Businesses apply to the firm.
Where does the FCA describe the high level competencies required for the provision of quality service and advice by firms to clients?
The Senior Management Arrangements, Systems & Controls [SYSC] sourcebook.
In terms of insurance mediation, which regulated activity would cover the act of a broker assisting in the completing of a proposal form?
Arranging the purchase of general insurance policies.
When do the ICOBS rules apply?
Apply to the insurance broker/intermediary who is in contact with the customer.
Where do the ICOBS rules not apply?
Reinsurance or contracts of large risks where the risk is located outside the EEA or commercial customers where the risk is located in EEA
When it is unclear what capacity the customer is acting in how should you treat them?
As a consumer
If a customer is acting in a private capacity and commercial one how should they be treated?
As a commercial customer
How should brokers act regarding inducements?
Broker does not accept inducements if they are likely to lead to a conflict of interest with their duties tot he client
When must information in a durable medium be supplied?
Before conclusion of the contract
Does the FCA require a broker to disclose it’s status (address and authorisation status)
Yes via an initial disclosure document
Is an initial disclosure document compulsory?
Yes for consumer contracts
When does the FCA require brokers to disclose their commission?
When asked by commercial customer
Is it essential for insurer’s agreement to any potential corrections is received before or after the document is sent?
Yes, before the document is sent
Who is responsible for handling claims?
Insurer even of they delegated or outsourced the work
Give an example of placement in money laundering?
Purchasing an insurance policy
What is layering in money laundering?
Concealing the origins of the money, additional transfers or transactions
What is integration in money laundering?
Accessing the clean money
