Chapter 6 - Legal and Regulatory Environment Flashcards
What are the three financial services regulatory bodies in the UK?
- financial conduct authority
- prudential regulation authority
- financial policy committee
What are the objectives of the PRA?
- promote the safety and soundness of PRA regulated persons
- ensure regulated persons behave to avoid adverse effects on UK financial system
- minimising adverse effect that failure of regulated person could be expected to have on the stability of UK financial system
- facilitate competition
What are the PRA threshold conditions?
- firms head office, in particular management, in UK
- business must be conducted in a prudent manner
- fit and proper and appropriately staffed
- capable of being effectively supervised
What is the PRA’s risk framework and what does the baseline level of monitoring include?
Framework:
- potential impact on policy holders
- macroeconomic and business risk context in which firm operates
- mitigating factors like risk management and governance
Monitoring:
- ensure compliance with prudential standards for capital
- liquidity, asset valuation, provisioning and reserving
- annual review of risks posed by firms / sectors to PRA’s objective
- assess a firms planned recovery actions and how it might exit the market
What are the objectives of the FCA?
- ensure the relevant markets function well
- consumer protection
- integrity of the UK financial system
- competition
What does the FCA look at in a firm and how do they ensure good outcomes?
Focus on:
- product governance
- end-to-end sales
- prevention of financial crime
Ensure by:
- corporate culture
- conduct risk management
- product design
What are the FCA’s two approaches to supervision?
- fixed portfolio, small population of firms that require highest supervision, allocated named supervisor
- flexible portfolio, all others and do not het a named supervisor
What is the FCA’s risk framework?
- firm systematic framework
- event driven work
- issues and products
What are the principles for business?
- integrity
- skill, care and diligence
- management and control
- financial prudence
- market conduct
- customers interests
- communication with clients
- conflicts of interest
- customers relationship of trust
- clients assets
- relations with regulators
What is fair treatment through a products life cylce?
- product design and governance
- identifying target market
- marketing and promoting product
- sales and advice process
- after-sales information
- complaint handling
What are senior management arrangements, systems and controls (SYSC)?
each regulated firm must take reasonable care to share out significant responsibilities within the firm between directors and senior managers so it is clear who has which responsibility
- each firm must appoint a money laundering reporting officer for example
What does the Public Interest Disclosure Act 1998 (PIDA) say?
individuals who make a qualifying disclosure have the right not to suffer any detriment by act or omission by employed because of disclosure
What counts as a qualifying disclosure?
one which in reasonable belief of the worker has been committed:
- criminal offence
- failure to comply with legal obligation
- miscarriage of justice
- putting health and safety of any one in danger
- damage to environment
- deliberate concealment of any of the above
What is the difference between writing business on an establishment basis vs a service basis in the EU?
Establishment means setting up an office in another state, service when they choose to write from their home state
How do you write business in the US if foreign based?
State regulators allow foreign insurance companies to write on an admitted basis but require submission of wordings and rates to be agreed
How do Lloyd’s insurers work around submitting wordings and rates?
Write business on a surplus lines basis
How do Lloyd’s market syndicates gain permission to write in the US?
Central permission from the Lloyd’s Market, company markets must gain permission individually
Which three states allow Lloyd’s to write direct business?
- kentucky
- illinois
- us virgin islands
WHo regualtes the society of lloyds and managing agents?
FCA and PRA
Who regulates brokers and members agents?
FCA only
Why are regulators willing to allow Lloyd’s a degree of self-regulation?
Insureds must have same degree of protection at least as non-Lloyds insurer
Who is the governing body of Lloyds and what are their powers?
Council of Lloyds
- rule-making
- management and superintendence of all affairs of Lloyd’s
- right to exercise any powers of society of Lloyds
- power to direct insurance business inside Lloyds
What are the two forms of laws in Lloyds?
- byelaws and regulations (set out fundamental concepts)
- requirements (set out how to achieve byelaws)
- additional guidance set out in explanatory notes
What acts would breach enforcement jurisdication in Lloyds?
- dishonesty
- faking or forging documents
- failure to look after money held on trust
- failure to organise and or control business
How do new insurers get authorised?
- if UK must be approved as fit and proper by PRA
- if EU wanting to transact in UK must satisfy similar requirements to PRA in home state
What are the three main options for participation in the London Market for corporate newcomers?
- set up new corporate member or Name to partitipate in syndicates that already exist
- set up new corporate member or Name and a new syndicate
- set up a new corporate member or Name, a new syndicate and managing agent to run the syndicate
How are authorised insurers monitored?
Each financial year must submit
- revenue account
- profit and loss account
- balance sheet
What is the financial ombudsman service (FOS)?
free, independent service that deals with disputes between individual consumers / small businesses and financial institutions
Who is an eligible complainant to FOS?
- consumer
- micro entreprise with less than 10 employees or turnover less than €2m
- charity with annual income less than £6.5m
- trustee of trust with net assets less than £5m
- consumer buy-to-let consumer
- small business with less than 50 employees and annual turnover less than £6.5m
- guarantor
What is the maximum award FOS can require a firm to pay?
- 355k for complants about actions / omissions after 1 Apr 2020
- 350k for 1 Apr 2019 - 31 Mar 2020
- 160k before 1 Apr 2019
What is the FSCS for?
Covers claims against companies who are unable to pay (think Northern Rock)
What does the FSCS protect 100% for?
- compulsory insurance
- PI insurance
- long-term insurance
How is FSCS funded?
Levy on all authorised firms
