Chapter 6: Legal and Regulatory Enviornment

Question 1

Define ‘capital adequacy’

Answer 1

The minimum reserves a financial institution must have available

Question 2

Define ‘conduct risk’

Answer 2

The potential for a company’s actions or behaviours to harm its customers, stakeholders, or market integrity

Question 3

Define ‘protected disclosures’

Answer 3

Whistle blowing

Question 4

Who are the Financial COnduct Authority?

Answer 4

Market regulator who also look after consumer protection

Question 5

Who are the Prudential Regulation Authority?

Answer 5

Responsible for the stability and solvency of important financial institutions

Question 6

Who are the Financial Policy Committee?

Answer 6

BoE committee that looks out for systemic risk that can affect the whole regime

Question 7

What are the objectives of the PRA?

Answer 7

To promote the safety and soundness of regulated institutions, and to protect those who may become policy holders

Question 8

What does the baseline level of monitoring from the PRA include?

Answer 8

Compliance with standards for capital, an annual review of the risks posed by firms, amd assessing a firm’s planned recovery

Question 9

What are the objectives of the FCA?

Answer 9

To protect consumers, to encourage a degree of integrity in the UK finanical system, and to promote effective competition in the markets

Question 10

Which regulatory body approves applications to high-level roles which have an impact on a firm’s regulated activities?

Answer 10

FCA and the PRA

Question 11

What is the FCA’s approach to regulation?

Answer 11

They are more proactive than previous regulators, and review and deal with consumer submissions. They encourage innovation, but not exploitation of the consumer

Question 12

What are FCA defined fixed protfolio firms?

Answer 12

Firms that require the highest level of supervisory attention- have a named supervisor

Question 13

What are FCA defined flexible portfolio firms?

Answer 13

Firms that are supervised within the FCA’s network

Question 14

What are the principles for business?

Answer 14

12 principles, laid out in both PRA rulebook and FCA handbook

Question 15

Define ‘fair treatment of customers’

Answer 15

Treating customers fairly, putting their experience at the heart of the company’s business model

Question 16

Define ‘commercial customer’

Answer 16

A person or organisation acting for purposes within their trade or profession

Question 17

Define ‘consumer duty’

Answer 17

Sets out the standard of care regulated firms should give to their retail customers

Question 18

What are the elements of the Consumer duty?

Answer 18

The consumer principle- that a firm must act to deliver good outcomes, cross cutting rules, and four key outcomes

Question 19

When did consumer duty come in to effect?

Answer 19

31st July 2023, but had up tl 31st July 2024 to make existing products and services compliant

Question 20

What is the Public Interest Disclosure Act 1998 about?

Answer 20

PIDA concerns whistle-blowing- says peopel should not be discriminated against for it

Question 21

Define ‘whistle-blowing’

Answer 21

Officially- making a qualifying disclosure

Question 22

What is insurance regulation like in the EU?

Answer 22

A company based in one EU state can operate freely in other EU states

Question 23

What is insurance regulation like in USA?

Answer 23

It varies on a state by state basis- states can admit companies from outside the USA, but policies and premiums have to be monitored by the state

Question 24

Define ‘surplus lines basis’

Answer 24

How Lloyd’s writes US business, removes the need to file wordings and premium rates with state regulators. But Lloyds can only access the risk if the local market cannot accept it

Question 25

Where has the Lloyd’s market been admitted in the US?

Answer 25

It has been admitted in to Kentucky, Illinois, and US Virgin Islands- but has now relinquished all three licenses

Question 26

Why do the PRA and FCA allow Lloyd’s self regulation?

Answer 26

Because they make sure insured have the same degree of protection as if they were being insured by a non-Lloyds insurer

Question 27

Define ‘primary rules: byelaws and regulations’

Answer 27

Regulations issued by Lloyds

Question 28

Define ‘secondary rules requirements’

Answer 28

Regulations issued by Lloyds, contain detail of what needs to be undertaken to comply with primary rules

Question 29

What do authorised insurers have to present to the regulator?

Answer 29

Revenue accounts, profit and loss account, and a balance sheet

Question 30

Define ‘run-off’

Answer 30

When a Lloyd’s syndicate cannot write or accept any more new risks

Question 31

What is the Financial Ombudsman Service?

Answer 31

A free service that deals with disputes between individual consumers and finanical organisations

Question 32

Can you go straight to FOS?

Answer 32

No, first internal complaints at the authorised firm must be exhausted, then you can move to FOS.

Question 33

What is the Financial Services Compensation Scheme?

Answer 33

Covers claims for when a firm is unable to pay them, such as if it has gone insolvent

Question 34

Define ‘Central Fund’

Answer 34

lloyd’s internal pot that pays out if an insurer is unable to do so