Chapter 7 - Regulatory Processes, systems and controls

Question 1

What are the main aspects of regulation that affects the London Market?

Answer 1

Non-life, solvency, insurance mediation (mainly affects brokers), reinsurance and accounting

Question 2

What are the steps for following regulation?

Answer 2

Obtaining information about applicable rules
Planning - plan to ensure compliance with regulation
Data evidence
Systems and controls - putting in place safety nets to try and avoid something happening

Question 3

What does the coding applied to Lloyd’s premium and claims data allow analysis of?

Answer 3

Country from which the risk has come
Location of the broker
Location of the risk
Any premium tax or other tax payable
Whether the business is direct or reinsurance

Question 4

What is Solvency II?

Answer 4

Name given to the EU’s Europe-wide solvency rules with the aim of:
Better regulation
Deeper integration of EU insurance market
Enhanced policyholder protection
Improved competitiveness of EU insurers.

Question 5

What are the fundamental reasons for sanctions being imposed?

Answer 5

Political pressure
To enforce the concept of respect for democracy
To enforce the concept of respect for human rights
To maintain and restore peace in a country/region

Question 6

What forms can Financial Sanctions come in?

Answer 6

Prohibiting the transfer of funds to a sanctioned country
Freezing the assets of a company or an individual
Freezing the assets of a whole government, as well as the companies and residents of the country concerned.

Question 7

What is the Office of Financial Sanctions Implementation (OFSI) in HM Treasury responsible for?

Answer 7

The implementation and administration of international financial sanctions in effect in the UK with the following responsibilities:
Domestic legislation on financial sanctions
Implementation and administration of domestic financial sanctions
Domestic designation
Providing advice to Treasury Ministers on domestic designation decisions
Implementation and administration of international financial sanctions in the UK
Working on the design of individual financial sanctions regimes and listed decisions at the UN and EU
Working with international partners to develop frameworks
Licensing exemptions to financial sanctions where permitted

Question 8

What are trade sanctions?

Answer 8

Managed and monitored by the Dep for Business, Energy and Industrial Strategy (BEIS) can include travel bans or bans on the import or export of certain cargos such as oil.

Question 9

Why is it important for London Market companies to understand and comply with US sanctions?

Answer 9

London Market has very close links with the USA, with business coming from the states to the London Market and many of the insurers operating in London Market have a US parent company

Question 10

What are some practical problems with sanctions?

Answer 10

Where the offending entity is not a party to the insurance at all, e.g. Piracy in countries which are sanctioned, no ransom money can be paid to them to free cargo and crew

Question 11

What is the Crystal System?

Answer 11

Accessible by Lloyd’s insurers and brokers which has info about sanctions on a country by country basis

Question 12

Who does the UK Data Protection Regulation (UK GDPR) apply to and what information does it apply to?

Answer 12

Applies to data controllers and processors in the UK, places legal obligations on them such as firms are required to maintain records of personal data and processing activities.
It applies to personal data of an identified living individual

Question 13

What is sensitive personal data under UK GDPR?

Answer 13

Special categories of personal data:
Race
Ethnic Origin
Politics
Religion
Trade union membership
genetics
biometrics
health
sex life/ sexual orientation

Question 14

What are the principles of GDPR?

Answer 14

Lawfulness, fairness and transparency
Purpose limitation - data should only be collected for legitimate purposes
Data minimisation
Accuracy
Storage limitation
Integrity and Confidentiality

Question 15

What are the six lawful bases for processing data?

Answer 15

Consent
Contract
Legal obligation
Vital interests - absolutely necessary
Public task - necessary to perform in the public interest
Legitimate interests

Question 16

What are the rights for individuals under UK GDPR?

Answer 16

Right to be informed
Right of access
Right to rectification
Right to erasure - right to have personal data erased
Right to data portability
Right to restrict processing
Right to object
Rights in relation to automated decision making and profiling

Question 17

What functions should firms think about how data is used?

Answer 17

All of them:
Claims - using data and analytical tools for fraud prevention
Pricing - Limits how telematic data can be used without consent
Underwriting - Data enables insurers to identify smaller homogenous pools of risk

Question 18

What is Money Laundering and what is the traditional model used?

Answer 18

Process by which criminals attempt to disguise the origin of cash or other assets that they have earned from crime

Model:
Placement - placing it into the financial system
Layering - creating a serious of complex transactions
Integration - Criminal finally gets access to the ‘clean’ money

Question 19

What are the current principal money laundering offences set out by the Proceeds of Crime Act (POCA) 2002 and what are the maximum penalties for breaking these principal laws?

Answer 19

Concealing, transferring, converting or removing criminal property
Making arrangements in respect of criminal property
Acquiring, using or possessing criminal property

Max prison sentence of 14 years, an unlimited fine or both

Also established:
Offences of failing to report suspected money laundering
offences of Tipping off about a money laundering disclosure

Question 20

What relevant persons do the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the payer) Regulations 2017 include?

Answer 20

Credit and financial institutions (includes insurers and brokers)
Auditors, insolvency practitioners, accountants and tax advisers
Lawyers
Trust or company service providers
Estate agents
High value dealers (any business/sole trader which accepts or makes high value cash payments of EUR 10,000 or more for goods)
Casinos

Question 21

What is the Joint Money Laundering Steering Group (JMLSG)?

Answer 21

Made up of the leading UK Trade Associations in the financial services industry, with the aim of promoting good practice in countering money laundering and to give practical assistance in interpreting the UK Money Laundering Regulations.

Question 22

What is the role of a nominated officer (either a director or senior manager) for anti-money laundering?

Answer 22

Must take overall responsibility for establishing and maintaining effective anti-money laundering systems and controls within the firm.
They are nominated to receive disclosures under the Terrorism Act 2000.

Question 23

What is a Money Laundering Reporting Officer (MLRO)?

Answer 23

Appointed under the FCA rules to act as the focal point for all activity within the firm relating to money laundering
- Takes responsibility for the firms FCA rules compliance, relating to money laundering
- acts as a focal point for all anti-money laundering firm activity
- Required to have certain levels of authority and independence within the firm
- Required to have sufficient resources and info to enable them to fulfil their responsibilities

Question 24

What is necessary to establish about a client before doing business with them in the case of a company?

Answer 24

Its full name
Registered Number
Registered office in the country of incorporation
Business address and check that it legally exists for normal business operations
Proof of identity, for individuals it should be ‘photographic’