Chapter 6: Legal and Regulatory Enviornment Flashcards
Define ‘capital adequacy’
The minimum reserves a financial institution must have available
Define ‘conduct risk’
The potential for a company’s actions or behaviours to harm its customers, stakeholders, or market integrity
Define ‘protected disclosures’
Whistle blowing
Who are the Financial COnduct Authority?
Market regulator who also look after consumer protection
Who are the Prudential Regulation Authority?
Responsible for the stability and solvency of important financial institutions
Who are the Financial Policy Committee?
BoE committee that looks out for systemic risk that can affect the whole regime
What are the objectives of the PRA?
To promote the safety and soundness of regulated institutions, and to protect those who may become policy holders
What does the baseline level of monitoring from the PRA include?
Compliance with standards for capital, an annual review of the risks posed by firms, amd assessing a firm’s planned recovery
What are the objectives of the FCA?
To protect consumers, to encourage a degree of integrity in the UK finanical system, and to promote effective competition in the markets
Which regulatory body approves applications to high-level roles which have an impact on a firm’s regulated activities?
FCA and the PRA
What is the FCA’s approach to regulation?
They are more proactive than previous regulators, and review and deal with consumer submissions. They encourage innovation, but not exploitation of the consumer
What are FCA defined fixed protfolio firms?
Firms that require the highest level of supervisory attention- have a named supervisor
What are FCA defined flexible portfolio firms?
Firms that are supervised within the FCA’s network
What are the principles for business?
12 principles, laid out in both PRA rulebook and FCA handbook
Define ‘fair treatment of customers’
Treating customers fairly, putting their experience at the heart of the company’s business model
Define ‘commercial customer’
A person or organisation acting for purposes within their trade or profession
Define ‘consumer duty’
Sets out the standard of care regulated firms should give to their retail customers
What are the elements of the Consumer duty?
The consumer principle- that a firm must act to deliver good outcomes, cross cutting rules, and four key outcomes
When did consumer duty come in to effect?
31st July 2023, but had up tl 31st July 2024 to make existing products and services compliant
What is the Public Interest Disclosure Act 1998 about?
PIDA concerns whistle-blowing- says peopel should not be discriminated against for it
Define ‘whistle-blowing’
Officially- making a qualifying disclosure
What is insurance regulation like in the EU?
A company based in one EU state can operate freely in other EU states
What is insurance regulation like in USA?
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
Define ‘surplus lines basis’
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
Where has the Lloyd’s market been admitted in the US?
It has been admitted in to Kentucky, Illinois, and US Virgin Islands- but has now relinquished all three licenses
Why do the PRA and FCA allow Lloyd’s self regulation?
Because they make sure insured have the same degree of protection as if they were being insured by a non-Lloyds insurer
Define ‘primary rules: byelaws and regulations’
Regulations issued by Lloyds
Define ‘secondary rules requirements’
Regulations issued by Lloyds, contain detail of what needs to be undertaken to comply with primary rules
What do authorised insurers have to present to the regulator?
Revenue accounts, profit and loss account, and a balance sheet
Define ‘run-off’
When a Lloyd’s syndicate cannot write or accept any more new risks
What is the Financial Ombudsman Service?
A free service that deals with disputes between individual consumers and finanical organisations
Can you go straight to FOS?
No, first internal complaints at the authorised firm must be exhausted, then you can move to FOS.
What is the Financial Services Compensation Scheme?
Covers claims for when a firm is unable to pay them, such as if it has gone insolvent
Define ‘Central Fund’
lloyd’s internal pot that pays out if an insurer is unable to do so
