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LM2 > Chapter 5: Legal and regulatory requirements > Flashcards

Chapter 5: Legal and regulatory requirements Flashcards

1
Q

Compulsory insurances for Private Individuals

A
  • Third party motor
  • Public liability in respect of wild animal ownership
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2
Q

Compulsory insurances for Professions and business

A
  • Motor insurance
  • Employer’s liability insurance
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3
Q

Why are insurances compulsory

A
  • Provide funds for compensation
  • In response to national concerns
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4
Q

Road traffic Act 1988

A
  • Legal requirement to have motor third party
  • Illegal to use a vehicle on public road unless insured
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5
Q

Employers liability (compulsory insurance) Act 1969

A

Updated 1998, 2004, 2008 and 2011.

  • Employers are required to hold EL insurance
  • Insurers against liability to pay compensation to employees who sustain injury during employment

Minimum Limit of Indemnity is £5 million

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6
Q

Riding Establishments Act 1970

A
  • Public liability insurance is mandatory for riding schools
  • indemnifies the insured against claims from using their horses (including injury to riders and public)
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7
Q

Compulsory PI/Professional negligence

A

Solicitors, Accountants, Doctors and Dentists are required to hold PI to have licence to practice

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8
Q

Why are compulsory insurances required

A
  • Cover financial impacts of situations the insured is legally responsible or liable
  • Protect innocent victims
  • Longtail business means that losses can take a long time to be notified
  • Insurers will defend claims against insureds removing legal fee financial burden
  • sometimes required to purchase for period beyond when businesses cease to operate
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9
Q

Employers liability Assurance Corporation

A
  • Set up 1880
  • Dealt with new requirement for insurance created by EL act 1880
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10
Q

Warranty

A

Promise made by insured to insurer

Duties of good faith and fair representation exist between the two

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11
Q

Breach of Warranty

A

Suspends contract for period of the breach

Breach of good faith may see insurers ‘come off’ risk

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12
Q

EL Compulsory insurance regulation 1998 Section 2

A

Shall cease if
- Something specified is done or omitted to be done (warranty)
- Insured does not take care to protect employees to prevent risk of injury
- Insured fails to comply with legal requirements
- Insured does not keep records or fails
- Insurer has to deal with 3rd party claims but can challenge insured for payments

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13
Q

Treating third party claims

A

Insurer cannot refuse to deal with them but can proceed against the insured for repayment of sums

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14
Q

Compulsory insurance in USA

A

Workers comp (EL)
- Regulated state by state

  • Compulsory motor insurance for commercial vehicle owners (not private)

Some states require employers to buy short-term disability insurance

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15
Q

Compulsory insurance in Turkey

A
  • Property owners must have insurance against earthquakes
  • some compulsory motor insurance
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16
Q

Compulsory insurance in Australia

A
  • 3rd party motor insurance

in all but 2 states in Aus have one provider of basic motor insurance

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17
Q

Compulsory insurance in Germany

A
  • 3rd party liability but broader in scope than motor insurance
  • required for any event which German court might find you negligent
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18
Q

Consumer Rights Act 2015

A
  • terms and notices have to be fair in consumer contracts
  • unfair terms are not binding
  • takes into account circumstances
  • To avoid being measured as unfair, term should be transparent and prominent
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19
Q

Unfair contract term

A
  • causes significant imbalance in parties’ rights and obligations under the contract
  • detrimental to the consumer
  • takes into account circumstances which existed when contract was agreed
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20
Q

Contracts (Rights of Third Parties) Act 1999

A
  • Contract is an agreement between 2 or more parties
  • 3rd party has no right to sue for breach of contract
  • reformed privity rule and set out circumstances 3rd parties can enforce contract terms
  • Contract must express provision for enforcement or 3rd party identified by name/description
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21
Q

Privity of contract

A

People who are actually a party in the contract and can enforce the terms

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22
Q

Injunction

A

Remedy awarded by the court to prevent a party from doing something

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23
Q

Specific performance order

A
  • opposite of an injunction
  • orders party to perform a particular act

E.g. could order party to comply with contract

24
Q

Contracts Act 1999 Exclusion clause (cargo)

A
  • do not apply to this insurance
  • no benefits conferred to a third party
  • No third party can enforce any term
  • doesnt impact rights of the assured
25
Q

IPT

A

12% in UK

  • Tax levied by UK Gov on general insurance premiums
26
Q

Standard and Higher IPT rates

A

Standard = 12%

Higher (Travel/other sold in conjuction with appliances) = 20%

27
Q

IPT exempt insurances

A

Most long term insurances

  • Reinsurance
  • Insurance on ships
  • Aircraft
  • International GITs

Due to most risks located outside the UK but may be liable for similar taxes in other countries

28
Q

Who collects IPT

A

Insurer collects from insured along with premium and pay to the UK Gov

typically paid to broker who pays both to insurer before they pay HMRC

29
Q

Calculating IPT on a premium with brokerage

A

IPT only applies to the Premium not brokerage

£1000 premium and 20% brokerage

£1000 premium
£200 brokerage
£120 IPT

£920 net to insurer (£120 then paid to HMRC)

30
Q

Senior Managers and Certification Regime (SM&CR)

A
  • Applies to both insurers and brokers
  • new regulatory framework of accountability to replace APER (Approved persons regime)
  • focuses on senior individuals in firms
31
Q

Firm requirements under SM&CR

A
  • Senior managers have to have statements of responsibilities to set our personal accountability
  • Produce firm responsibilities map
  • Ensure senior manages are pre-approved by regulators
32
Q

Regulator expectations of SM&CR

A
  • Encourage staff to take personal responsibility
  • Improve conduct at all levels
  • Make sure staff understand and demonstrate who does what
33
Q

Bank of England and Financial Services Act 2016

A
  • Duty of responsibility
  • Senior managers required to take steps to prevent regulatory breach
  • SM&CR should result in greater disciplinary action
34
Q

SM&CR parts

A
  • Senior Managers Regime
  • Certification Regime
  • Rules of Conduct
35
Q

Senior Managers Regime

A
  • Applies to senior officials in firms (Known as senior management functions SMF)
  • specified by rules made by PRA and FCA
  • any new senior appointment need prior approval by regulators
36
Q

New roles covered under SMFs

A
  • Head of Key business area
  • Group entity senior manager
  • Significant responsibility function
37
Q

Executive SMFs prescribed by PRA

A

Chief executive function
Chief finance function
Chief risk function
Head of internal audit
Head of key business area
Group entity senior manager

38
Q

Non-Executive SMFs prescribed by PRA

A

Chairman
Chair of the risk committee
Chair of the audit committee
Chair of the remuneration committee
Senior independent director

39
Q

Statement of responsibilties

A
  • prepared for each senior manager
  • set out responsibilities
40
Q

Certification Regime

A
  • apply to individuals not carrying out SMFs
  • roles are still deemed capable of causing significant harm to the firm or customers
  • Requires firms to assess the fitness and propriety of persons performing key roles
  • Formally certify the assessment annually
  • Significant harm function
41
Q

Rules of conduct

A
  • apply to senior managers, certified persons and other employees
42
Q

First tier - individual conduct rules

A
  • Integrity
  • Due skill, care and diligence
  • Open and cooperative with FCA, PRA and other regulators
  • Pay due regard to interests of customers and treat them fairly
    Observe proper standards of market conduct
43
Q

Second tier - Senior manager conduct rules

A

SC1 - Take reasonable steps to ensure business is controlled effectively
SC2 - Take steps to make sure business complies with requirements and standards of regulatory system
SC3 - Take steps to ensure delegation of roles is to someone appropriate
SC4 - Must disclose information to FCA or PRA which would be reasonably expected

44
Q

Ancillary roles in the FCA that fall out of scope

A
  • Switchboard operators
  • Receptionists
  • Security staff
  • HR
  • Secretarial staff
45
Q

Unacceptable behaviour - Acting with integrity

A

Deliberately
- misleading a customer/regulator
- recommending a product it cant justify
- Failing to inform customer./regulator misunderstanding material issue
- Prepare inaccurate records
- Misuse assets/confidential information of customer/firm

46
Q

Unacceptable behaviour - Due skill

A
  • recommending investment with no justification
  • providing advice on transaction
  • failure to provide control customer assets
  • Fail to disclose conflict of interest
  • fail to inform customer of information they werent aware of
47
Q

Unacceptable behaviour - Observing proper standards

A
  • Insider dealing
  • Misusing market information
48
Q

Unacceptable behaviour - Dealing with regulators openly

A
  • Failure to answer questions
  • not reporting information where it is of material interest
49
Q

Unacceptable behaviour - business controlled effectively

A
  • failure to apportion responsibilities under control
  • failure to divvy up responsibilities clearly
  • failure to share load appropriately
50
Q

Unacceptable behaviour - Exercising due skill

A
  • failure to ensure you are adequately informed
  • Delegated authority without reasonable grounds for believing it will be handled
  • Failure to maintain understanding on delegated area
51
Q

Unacceptable behaviour - Compliance

A
  • Failure to take reasonable steps to implement adequate system to control compliance
  • failure to take steps to monitor
  • Failure to inform on why significant breaches arose
  • failure to take action after breaches are identified
52
Q

Things to review to see if someone is fit and proper

A
  • Honesty, integrity and reputation
  • competence and capability
  • financial soundness
53
Q

Compliance officer

A
  • carry out compliance oversight function
  • report to governing body of the firm
  • considered SMF and so is regulated by PRA and FCA
54
Q

Main role of compliance officer

A
  • Ensure that their firm abides by UK law and the rules and regulations set down by the regulator.

Vital to insurers/intermediaries as there are serious consequences for failing to abide

55
Q

Functions of compliance officer

A
  • Communicate company’s policies and associated training
  • Completion of regulatory returns
  • reviewing company procedures
  • maintaining company’s compliance manual
  • Checking that all stages of the business process are being conducted in line with compliance manual

May be hands on or hands off depending on size of organisation

56
Q

Money Laundering Reporting Officer (MLRO)/Nominated officer

A
  • All organisations have to ensure there are checks and procedures in place to prevent it
  • SMF within UK regulatory framework so is regulated by both PRA and FCA
57
Q

Whos not an SMF

A

Head of Claims

LM2 (10 decks)

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