Chapter 9 - Legal & Regulatory Environment Flashcards
A - Compulsory Insurance
- What types of insurance has the UK Government tended to make compulsory? Why?
Risks relating to legal liability or negligence.
To make sure funds are available to compensate innocent victims of accidents.
A - Compulsory Insurance
- What type of compulsory insurance are private individuals required to have?
Third-party motor insurance.
Public liability insurance in respect of dangerous wild animals and dogs.
A - Compulsory Insurance
- What type of compulsory insurance are professionals and businesses required to have?
Motor insurance
Employers Liability Insurance
Public Liability Insurance for specific trades and professions
Professional Indemnity for professions like Solicitors
Marine Pollution Liability Insurance
Liability insurance for Nuclear operators
A - Compulsory Insurance
- What are the main reasons certain forms of insurance are compulsory?
To provide funds for compensation
In response to national concerns
A - Compulsory Insurance
A1 Motor Insurance
- What types of motor insurance are compulsory?
Third-party property damage
Third-party bodily injury or death
A - Compulsory Insurance
A1 Motor Insurance
- What changes did the Deregulation Act 2015 make to the Road Traffic Act regarding motor insurance?
Insurance certificates must still be delivered, but delivery is no longer required for the policy to be effective
When a policy is cancelled mid-term, the policyholder is no longer required to return the certificate or make a statutory declaration acknowledging the policy has ceased to have effect
Insurers are relieved of the burden of requesting policyholders to surrender certificates for cancelled policies
A - Compulsory Insurance
A2 Liability insurance for dangerous wild animals and dogs
- Is the nature and scope of liability insurance for dangerous wild animals and dogs defined in the Dangerous Wild Animals Act 1976 and the Dangerous Dogs Act 1991?
No. But local authorities who issue licenses must be satisfied.
A - Compulsory Insurance
A2 Liability insurance for dangerous wild animals and dogs
- Can liability insurance for dangerous wild animals and dogs be sold as individual policies?
No, generally they are sold as an extensions to other policies. e.g. household insurance
A - Compulsory Insurance
A3 Employers’ Liability Insurance
- Which act made it compulsory for employers to have Employers Liability Insurance?
Employers Liability (Compulsory Insurance) Act 1969
A - Compulsory Insurance
A3 Employers’ Liability Insurance
- What is the minimum required limit of indemnity with employers liability insurance?
£5m
A - Compulsory Insurance
A4 Public Liability Insurance for Riding Establishments
- What type of insurance must proprietors of riding establishments have?
Public liability insurance
A - Compulsory Insurance
A4 Public Liability Insurance for Riding Establishments
- What does public liability insurance for riding establishments cover?
Claims arising from the use of insured horses. This includes injuries to those riding the horse and members of the public
An - Compulsory Insurance
A5 Professional Indemnity Insurance
- Who is required to have PI insurance?
Solicitors
Accountants
Independent Intermediaries who are authorised by the Financial Conduct Authority (FCA)
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5A Solicitors
- Which act states Solicitors must have PI Insurance?
Solicitors (Amendment) Act 1974
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5A Solicitors
- What does Professional Indemnity Insurance cover Solicitors against?
Negligence in making all the necessary enquiries in relation to the purchase of a property
Errors or omissions in the preparation of legal documents resulting in the completion of defective contracts and consequent financial loss to the client
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5B Insurance Intermediaries
- What does Professional Indemnity Insurance cover for Independent Intermediaries?
Financial loss suffered by a third party caused by their professional negligence
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5B Insurance Intermediaries
- Do Appointed Representatives and Introducer Appointed Representatives need Professional Indemnity Insurance?
No, since everything they do is undertaken for an insurer that is responsible for their actions.
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5B Insurance Intermediaries
- What is the minimum level of professional indemnity an Independent Intermediary must have?
€1,300,380 for a single claim
€1,924,560 for aggregate losses or 10% of annual income (up to £30m)
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5C Growing need for PI Cover
- Why is there a growing need for PI cover?
The rising cost of legal services
Retrospective legislation may move goalposts
Adverse judicial decisions
A - Compulsory Insurance
A5 Professional Indemnity Insurance
A5C Growing need for PI Cover
- Is there a compulsory requirement for manufacturers to have liability cover of defective or dangerous products?
No.
B - Legislation concerning Third Parties
B1 Contracts (Rights of Third Parties) Act 1999
- What does the concept of Privity of Contract mean?
A person can only enforce a contract if they are a party to it.
Consequently, even if a contract is made with the purpose of benefiting someone who is not a party to it, that person has no right to sue for breach of contract
B - Legislation concerning Third Parties
B1 Contracts (Rights of Third Parties) Act 1999
- What change did the Contracts (Rights of Third Parties) Act 1999 make to the concept of Privity of Contract?
Third parties can claim for damages, injunction or special performance if
The contract makes express provision for the enforcement
The third party is expressly identified in the contract by name, class or description
B - Legislation concerning Third Parties
B2 Third Parties (Rights Against Insurers) Act 2010
- What does the Third Parties (Rights Against Insurers) Act 2010 set out to protect?
Insurance proceeds from the effects of insolvency.
B - Legislation concerning Third Parties
B2 Third Parties (Rights Against Insurers) Act 2010
- How does the 2010 Act differ from the 1930 Act?
The 1930 Act requires the insured to make an application to the court to restore a dissolved insured company to the Register of Companies in order to establish liability and bring a claim against it. This is costly and time consuming.
The 2010 Act permits a third party to bring a claim directly against the insurer, without having to restore the insolvent company to the register. This prevents insurance monies from being paid to general creditors as part of insolvency proceedings instead of to the intended beneficiaries.
B - Legislation concerning Third Parties
B2 Third Parties (Rights Against Insurers) Act 2010
- What is necessary for the 2010 Act to apply?
The insured must:
Incur a liability to a third party for which they have insurance
Be insolvent
B - Legislation concerning Third Parties
B2 Third Parties (Rights Against Insurers) Act 2010
- Break down the Third Parties (Rights Against Insurers) Act 2010 with a simple example.
Billy-Bob Joe Jenkins works for a company. He’s gets cancer from asbestos exposure years after working for the company. The company had employers liability insurance he could claim on. Billy-Bob Joe finds out that since he left the company became insolvent. Billy-Bob Joe is entitled to issue a claim directly against the insurer, rather than having to seek permission from the courts to do so.
B - Legislation concerning Third Parties
B Third Parties (Rights Against Insurers) Act 2010
- When did the Third Parties (Rights Against Insurers) Act 2010 come into effect?
1st August 2016
C - Overview of the UK Regulatory Framework
- Name the 3 regulatory bodies that the UK regulatory framework for financial services consists of?
Prudential Regulatory Authority (PRA)
Financial Conduct Authority (FCA)
Financial Policy Committee (FPC)
C - Overview of the UK Regulatory Framework
- What is the PRA part of?
The Bank of England
C - Overview of the UK Regulatory Framework
- What is the PRA responsible for?
The stability and resolvability of systemically important financial institutions such as banks, building societies and insurers.
C - Overview of the UK Regulatory Framework
- Will the PRA seek to prevent all firm failures?
No, but it will seek to ensure that firms can fail without bringing down the entire financial system.
C - Overview of the UK Regulatory Framework
- What type of approach does the PRA focus on?
A ‘judgment based’ approach
C - Overview of the UK Regulatory Framework
- What is the FCA responsible for?
Conduct of business
Prudential regulation of small firms e.g. insurance brokerages and financial advisory firms
C - Overview of the UK Regulatory Framework
- When will the FCA take action?
Early, before consumer detriment occurs
C - Overview of the UK Regulatory Framework
- Does the FCA have the ability to ban products where necessary?
Yes.
C - Overview of the UK Regulatory Framework
- What is the Financial Policy Committee part of?
The Bank of England
C - Overview of the UK Regulatory Framework
- What is the FPC responsible for?
Monitoring emerging risks to the financial system as a whole
Providing strategic direction for the entire regulatory regime
D - Prudential Regulation Authority (PRA)
- What are the two primary objectives of the PRA?
Promote the safety and soundness of the firms it regulates
Contribute to ensuring policyholders are appropriately protected
D - Prudential Regulation Authority (PRA)
- What is the secondary objective of the PRA?
Facilitate effective competition in the markets
D - Prudential Regulation Authority (PRA)
D2 Threshold Conditions
- What are the PRA’s Threshold Conditions?
The minimum requirements that firms must meet to be permitted to carry out regulated activities.
D - Prudential Regulation Authority (PRA)
D2 Threshold Conditions
- At a high level, the PRA’s Threshold Conditions require…?
Head office in the UK
Business to be conducted in a prudential manner
Appropriate financial and non-financial resources
Appropriate staffing
Capable of being effectively supervised
D - Prudential Regulation Authority (PRA)
D3 Approach to Supervision
- What is the PRA’s approach to supervision?
Judgement-based
Forward looking
Focused on key risks
D - Prudential Regulation Authority (PRA)
D4 Risk Assessment Framework
- The PRA’s risk assessment framework operates in a way that reflects the PRA’s additional objection to…what?
Protect policyholders as well as the financial system.
D - Prudential Regulation Authority (PRA)
D4A The Intensity of Supervision
- What factors determine the level of supervision the PRA takes with firms?
The level of risk
The threat of harm to policyholders
D - Prudential Regulation Authority (PRA)
D4A The Intensity of Supervision
- What is involved in the ‘baseline level of monitoring’ that all firms face from the PRA?
Ensuring compliance with prudential standards for capital
Liquidity, asset valuation, provisioning and reserving
Annual review of the risks posed by the firm
Examine individual firms when a risk crystallizes
Assess the firms recovery plan and how it might exit the market
D - Prudential Regulation Authority (PRA)
D5 Proactive Intervention Framework (PIF)
- A firms proximity to failure will be captured in the firm’s position in…what?
The PRA’s Proactive Intervention Framework (PIF)
D - Prudential Regulation Authority (PRA)
D5 Proactive Intervention Framework (PIF)
- How many stages are there in the PRA’s Proactive Intervention Framework (PIF)? How do companies fit in it?
Five.
The higher the stage, the more the company’s viability has deteriorated in the eyes of the PRA and the more supervision they will receive.
D - Prudential Regulation Authority (PRA)
D6 Firms’ culture and prudential supervision
- Does the PRA have a specific culture in mind that firms must aim towards?
No, so long as management are acting prudently.
E - Financial Conduct Authority (FCA)
E1 FCA Objectives
- What is the overarching strategic objective of the Financial Conduct Authority (FCA)?
Make sure the relevant markets function well.
E - Financial Conduct Authority (FCA)
E1 FCA Objectives
- What are the three operational objectives of the Financial Conduct Authority (FCA)?
Consumer protection
Integrity
Competition
E - Financial Conduct Authority (FCA)
E2A Product Intervention and Governance
- Which organisations is more pro-active, the PRA or FCA? What powers do they have?
FCA
Temporary intervention rules
Product Pre-Approval
E - Financial Conduct Authority (FCA)
E2B Super-Complaints
- Is the FCA able to review and react to detailed submissions or super-complaints by consumer groups that highlight systematic problems in particular markets that previously only the Office of Fair Trading (OFT) could receive?
Yes.
E - Financial Conduct Authority (FCA)
E2B Super-Complaints
- Give examples of when super-complaints have been used?
Payment Protection Insurance
Extended warranties
E - Financial Conduct Authority (FCA)
E2B Super-Complaints
- What is the aim of the Competition and Markets Authority (CMA)?
Promote fair competition for the benefit of consumers
E - Financial Conduct Authority (FCA)
E2B Super-Complaints
- Does the Competition and Markets Authority (CMA) supersede the Competition Commission and consumer functions of the Office of Fair Trading?
Yes.
E - Financial Conduct Authority (FCA)
E2C Competition Powers
- What is the FCA’s competition objective?
Promote effective competition in the interests of consumers.
E - Financial Conduct Authority (FCA)
E3A General Principles
- What is the FCA’s high-level standards for business called?
Principles for Businesses (PRIN)
E - Financial Conduct Authority (FCA)
E3C Supervisory Work
- What are the eight principles which guide the FCA’s supervisory work?
Forward-looking
Focus on strategy and business models
Focus on culture and governance
Focus on accountability
Proportionate and risk-based
Two-way communication
Coordinated
Stop systematic harm
E - Financial Conduct Authority (FCA)
E3D Supervision Model
- The FCA’s supervision model is based on three types of work. What are they?
Proactive
Reactive
Thematic
E - Financial Conduct Authority (FCA)
E4 Intervention
- The Financial Services Act 2012 gave the FCA powers to intervene. True or False?
True.
E - Financial Conduct Authority (FCA)
E4 Intervention
- Can the FCA ban products?
If it identifies a serious problem, yes.
E - Financial Conduct Authority (FCA)
E4 Intervention
- Can the FCA enforce temporary product bans in the retail sector without prior cost-benefit analysis or consultation?
Yes, for up to 12 months.
E - Financial Conduct Authority (FCA)
E4 Intervention
- Can the FCA take action against misleading financial products? Can it vary permissions granted to firms?
Yes.
Yes.
E - Financial Conduct Authority (FCA)
E4 Intervention
- Are the FCA required to alert a firm to its proposed course of action?
Yes.
E - Financial Conduct Authority (FCA)
E4 Intervention
- Can the FCA use product intervention with any type of customer?
No, only retail customers.
E - Financial Conduct Authority (FCA)
E5 Publication of Enforcement Action
- Is the FCA allowed to publish the fact that a warning notice has been issued about a firm or individual as well as make a summary of the notice publically available?
Yes, the PRA can too.
E - Financial Conduct Authority (FCA)
E5 Publication of Enforcement Action
- Which branch of the FCA is responsible for conducting research into what is happening in the market and how the market can provide consumers with better analysis of the types of risks where they appear?
Policy, Risk and Research Division.
E - Financial Conduct Authority (FCA)
E7 Authorisation and Approvals
- What does the FCA’s authorisation function focus on?
Proposed business models
Governance and culture
Systems and Controls
E - Financial Conduct Authority (FCA)
E8 Accountability
- What is the FCA required to submit annually?
A report to the Government
E - Financial Conduct Authority (FCA)
E8 Accountability
- Who should the FCA make reports to in the event of a regulatory failure and where this failure was due to the FCA’s actions?
The Treasury.
E - Financial Conduct Authority (FCA)
E9 Engagement with Consumers
- Why does the FCA engage with consumers directly?
To build a better understanding of consumer behaviour, needs and experiences so it can shape how it designs its interventions.
E - Financial Conduct Authority (FCA)
E10 Transparency and Disclosure
- The FCA is required to have four statutory panels representing the views of who?
Consumers
Regulated Firms
Smaller Regulated Firms
Market Practitioners
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
- What are the FCA’s 12 Principles of Business?
Integrity
Care and Due Diligence
Management and Control
Financial Prudence
Market Conduct
Consumers’ Interests
Communications with Clients
Conflicts of Interest
Customers: Relationships of Trust
Clients assets
Relations with Regulators
Consumer Duty
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Integrity
Firms must act with integrity
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Care and Due Diligence
Firms must conduct business with Care and Due Diligence
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Management and Control
Firms must organize and control their affairs responsibly and effectively
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Financial Prudence
Firms must maintain adequate financial resources
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Market Conduct
Firms must observe proper standards of market conduct
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Customers’ Interests
Firms must respect the interests of its customers and treat them fairly
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Conflicts of Interest
Firms must manage conflicts of interest fairly
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Customers: Relationships of Trust
Firms must ensure the suitability of its advice for any customer relying on its judgement.
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Clients’ Assets
Firms must arrange adequate protection for clients assets if responsible for them
F - Operation of the PRA and FCA
F1 Principles of Business (PRIN)
Explain the PRIN of Consumer Duty
Firms must deliver good outcomes for retail customers
Ethical standards
What are they?
Integrity
Compliance
Client’s Interest
Fairness
Service
