Chapter 5 - Legal And Regulatory Requirements Flashcards
Compulsory insurance - what are the two types of people who are required to purchase?
Private individuals - 3rd party Motor, public liability (dogs)
Professions and businesses - Motor, employers liability
Why some insurance is compulsory
- To provide funds for compensation
- In response to national concerns
What does Motor 3rd party cover?
3rd party property damage
3rd party bodily injury or death
What does Employers Liability cover
Covers employers against liability to pay compensation to employees who sustain bodily injury or disease arising out of employment
Minimum limit of indemnity £5m but insurance market provides £10m as standard
What does Public Liability cover under the arising Establishments Act 1970
Indemnifies against claims made arising from using the insureds horses
Injuries sustained by those riding the horses or the public
Indemnifies horse riders against liability for injury to public arising out of hiring the horses
Liability for dangerous wild animals and dogs
Not a free standing insurance - likely to be an extension to home insurance under PL
Professional negligence/indemnity
Required by solicitors, accountants, doctors, dentists, as condition of having a licence to practice
Why compulsory insurance exists
Covers financial impact of situations where the insured is found to be legally responsible or liable for injury to people or loss or damage to their property.
What insurance is known as ‘long-tail’ business?
Liability.
Losses can take time to be notified and claims can take time to develop and be resolved.
Most insurances provide that insurer will defend claims against you.
Why do most compulsory insurances require insured to purchase for a period of time after business ceases to operate?
To protect the consumer should expert have ceased trading between time the advice given and point when client realised it was bad and incurred financial loss.
All compulsory insurances in the UK are…
Of a liability nature
What is a warranty?
A promise made by insured to the insurer.
Duty of good faith, fair presentation, disclosure of material information.
A breach of warranty suspends the insurance contract. Can come off cover, however cannot if:
Motor 3rd party
Employers liability
Due to desire to protect innocent 3rd party in an accident. Insurer can’t refuse to deal with 3rd party claims. However insurer can take action against insured to recover sums
What compulsory insurances does USA have?
Workers compensation- employers liability: medical, death, lost wages, rehabilitation
Each state regulates its own workers comp
Motor insurance for commercial vehicles (not for individuals)
Short term disability insurance for employees (only some states)
Consumer Rights Act 2015
Terms and notices in consumer contracts have to be fair.
- Unfair terms are not binding
Unfair if:
Causes imbalance in parties rights and obligations under the contract to detriment of consumer
Should be:
Transparent, prominent, expressed in plain intelligible language and be legible
What will be considered when judging if a term is unfair?
- subject matter of contract
- circumstances when contract agreed
- terms of contract
- any other contracts it depends on
Contracts (Rights of Third Parties) Act 1998
Only those party to a contract can enforce terms. (Privity of Contract)
This act reformed the privity rule to allow a third party to enforce terms
Contract must make express provision for this
Usually remedies are damages, injunction, specific, performance
What is an injunction?
An order to prevent someone from doing something
What is an order for specific performance?
Orders a party to perform a particular act
Contracts (Right of Third Parties) Act 1999 Exclusion Clause (Cargo)
Cargo insurers receive claims from those who are not original buyers of the contract (insurance sold on with goods). Cargo insurance is freely assignable.
Insurers would deal with parties not privy to the original insurance contract so exclusion was created to prevent 3rd parties enforcing terms.
IPT
Standard rate 12%
Higher rate 20% (travel)
Long-term insurances and non UK risks exempt
Insurer collects with premium and pays to HMRC on quarterly basis
Brokerage is not applied to the IPT amount, so their commission is percentage of the premium only
Senior Managers and Certification Regime (SMCR)
- New regulatory framework. required by Solvency 2 and new banking supervision rules
Firms required to:
- ensure each senior manager has a statement of responsibilities
- produce a ‘firm responsibilities map’
- ensure all senior managers pre-approved by regulators
Senior managers expected to prevent a regulatory breach (Bank of England and Financial Services Act 2016)
Senior Managers Regime
Senior management functions (SMFs) specified in rules made by PRA and FCA.
Firms must submit applications to regulators for approval of new senior manager appointment.
Roles covered by regulators:
- Head of key business area
- Group entity senior manager
- Significant responsibility function
Statement of responsibilities should be prepared for each senior manager including the firm’s responsibilities map.
Certification Regime
Individuals not carrying out SMFs but capable of causing significant harm to firm or customers.
Firms should formally certify this annually
Rules of conduct
Which apply to senior managers, certified persons and other employees
FIRST TIER RULES
- Act with integrity
- Act with due skill care and diligence
- Be open and cooperative with FCA, PRA and regulators
- Pay due regard to interests of customers and treat them fairly
- Observe proper standards of market conduct
SECOND TIER RULES
- ensure the business of the firm is controlled effectively
- ensure business of the firm complies with requirements of regulatory system
- ensure any delegation is to appropriate person and oversee discharge of delegated responsibility effectively
- disclose any information PRA or FCA would want to know
Controlled Functions: Unacceptable behaviour
- Misleading customer, firm or regulator
- Misusing assets of a customer or firm
- Failing to disclose conflict of interest
- recommending an unsuitable investment
- insider dealing
- misusing market info
- failing to answer regulators questions
- not reporting info of material interest
- failing to apportion responsibilities clearly
- failing to insure you’re adequately informed about affairs of the business
- failing to take steps to implement control
What qualities should a firm consider when reviewing if an individual is fit and proper?
- Honesty, integrity and reputation
- Competence and capability
- Financial soundness
Under SMCR What additional evidence must be collected when assessing candidates for senior management positions?
Senior Managers:
Criminal record checks
Senior managers, certified persons and non approved non exec directors:
Regulatory references past 6 yrs
SMCR came into effect for brokers 9th Dec 2019
Compliance officer
Reports to governing body
Senior management function
Regulated by PRA and FCA
Ensures firm abides by law and follows regulatory rules
FUNCTIONS:
- communication of regulatory returns
- completion of regulatory returns
- review procedures to ensure compliant
- maintain compliance manual
- checking business processes conducted in accordance with compliance manual
Tasks of the role may be carried out by an external compliance consultant
