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LM1 > LO7: Regulatory and Legal Environment > Flashcards

LO7: Regulatory and Legal Environment Flashcards

1
Q

who makes up the uks regulatory framework for financial services?

A
  • financial conduct authority
  • prudential regulation authority
  • financial policy committee
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2
Q

FCA summary

A
  • responsible for the conduct of business and market for all firms
  • aims to take early action to protect consumers
  • market wide analysis
  • reviews product life cycle, can ban
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3
Q

PRA summary

A

Prudential regulation authority
- sits in the bank of england
- responsible for the stability of important financial institutions, single firm failure without system failure

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4
Q

FPC summary

A

Financial Policy Committee
- in bank of england
- horizon scanning for risks to the whole financial system (industry)

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5
Q

PRA primary objective

A

Prudential regulation authority
- promote the safety and soundness of pra regulated persons

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6
Q

PRA secondary objectives

A
  • ensure persons act in away that doesnt jeprodise the financial system
  • minimize impact of single failure on whole system
  • encourage competition
  • appropriate protection for policy holders
  • appropriate protection distribution of with profit policies
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7
Q

PRA threshold for entry

A
  • uk head office
  • conduct ‘prudent’ business
  • appropriate staff
  • can be effectively supervised
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8
Q

PRA risk assessment framework considers

A
  • potential impact on customers
  • risk context the firm operates in (external and business)
  • mitigating factors (risk and management controls, management and governance)
  • financial mitigation (liquidity, capital)
  • structural mitigation (resolvability)
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9
Q

PRA basic level of monitoring

A
  • compliance with standards for capital
  • liquidity, asset valuation, provisioning and reserving
  • annual review of the risks the company poses to the pras objective
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10
Q

Proactive intervention framework

A

used to access the performance of authorised persons against the PRA supervisory framework
- has 5 stages

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11
Q

FCA operational objectives

A

consumer protection
integrity
competition, in the interest of consumers

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12
Q

define efficient and economic use of resources, who cares about it?

A
  • proportionality
  • consumer responsibilities
  • transparency

fca and pra care

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13
Q

fixed portfolio firms

A
  • small proportion of firms that require large supervision
  • have a named individual supervisor

related to fca

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14
Q

flexible portfolio firms

A
  • use fca customer contact centre
  • passed to the appropriate supervisor area where necessary
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15
Q

role authorization and approvals
- what they like

A

fca and pra have a say on the promotion of person who can impact a firms regulated activity

like candidates that will lead to good
- corporate culture
- product design
- conduct risk management

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16
Q

fca 3 pillar approach to risk

A
  • firm systematic framework (customer at the heart of the business?)
  • event driven work (flexible supervisory activity)
  • issues and products
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17
Q

what can fca do if they dont like somethong?

A

ban product
withdraw misleading financial ads
fine and prosecution of people/companies

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18
Q

who fca reports to ?

A
  • reports annually to parliment
  • can be vetoed by pra
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19
Q

PRIN
- what
- who

A

Principles for business:
- integrity
- skill, care, diligence
- management and control
- financial prudence
- market conduct
- customer interests
- communication with clients
- conflicts of interest
- customer relationships of trust
- client assets
- consumer duty

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20
Q

product life cycle

A
  • product design and governance
  • identifying the target market
  • marketing and promoting the product
  • sales and advice process
  • after sales information
  • complaint handling
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21
Q

consumer clients vs commercial client

A

consumer = natural person buying, not for trade or profession

commercial = other

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22
Q

consumer duty as described by fca

A

~ consumer principle
~ crosscutting rules = how firms should act to deliver good outcomes
~ four outcomes
- governance of products and services
- price and value
- consumer understanding
- consumer support

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23
Q

SYSC stands for?
SMCR stands for?

A

senior management arrangements, systems and controls
senior managers and certification regime

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24
Q

MLRO stands for?

A

money laundering reporting officer
- establishment and maintenance of effective antimoney laundering systems and controls

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25
Q

money laundering definition

A

the process of concealing the origin of proceeds of crime

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26
Q

public interest disclosure act 1998 concerns?

A

(PIDA)

whistle blowing

protects people from detriment from act or omission by employer

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27
Q

whistleblowing definition

A

public allegation of a firms concealed misconduct, usually from within

making a qualified disclosure

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28
Q

qualifying disclosures cover ?

A

(for whistle blowing)

  • criminal offence
  • failure to comply with legal obligations
  • miscarriage of justice
  • putting health and safety in danger
  • damage to environment
  • deliberate concealments of the above
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29
Q

FCA environmental, social, governance key themes

A
  • promote global standards for sustainable reporting
  • improved transparency of performance on diversity and inclusion matters
  • integrating esg into market decision making
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30
Q

Lloyds environmental, social, governance agenda

A
  • strategy and governance
  • climate
  • culture
  • communities
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31
Q

Requirements for admittance abroads

A
  • set up office
  • employ staff
  • incur capital expenditure
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32
Q

home state financial regulation

A

allows a company authorised in its home state to operate in any EU country

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33
Q

working on ‘establishment’ basis

A

company estabishes presence in another eu state

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34
Q

working on ‘services’ basis

A

company provides services from their home state

35
Q

admitted basis

A
  • US specific on a state by state basis
  • allows foreign companies to write business like a local insurer
  • requires the submission of wordings and rates (premium) to be agreed
36
Q

surplus lines basis

A
  • how lloyds operates in the us
  • excepts business not covered (cus of size or complexity) by the local/admitted markets
37
Q

lloyds syndicate operations abroad

A
  • lloyds bargains centrally
  • lloyds reports to local regu;ators centrally
38
Q

overseas reporting requirments about the risk

A
  • risk category
  • risk location
  • location of broker
  • tax payable
39
Q

who regulates the society of lloyds (lloyds)

A

fca and pra

40
Q

who regulates the managing agents

A

fca and pra

41
Q

who regulates brokers

A

fca

42
Q

who regulates members agents

A

fca

43
Q

lloyds job

A
  • ensure all participants are aware of their obligations
  • create and maintain controls over the risks to which the whole market is exposed to when there is impact on the funds held locally
  • measure and assess the capital needs of each member and name
44
Q

managing agents required undertakings as dictated by lloyds

A
  • file and annual solvency test returns
  • assess capital needs
  • put in place and maintain controls over risks (eg. market and credit risks)
45
Q

council of lloyds powers

A
  • rule making
  • power to exercise the powers of the society of lloyds
  • management of all affairs in lloyds
  • direct insurance business at lloyds
  • making/changing bylaws
  • setting long term strategic development of the market
  • deciding contributions to the central fund
  • deciding the amount of members
  • reviewing budgets and plans
46
Q

members of the council of lloyds

A

3 working
3 external
9 nominated

47
Q

executive team of the corporation of lloyds

A

does the day to day running, along with various committees

48
Q

byelaws and regulaitons

A

primary rules in lloyds

49
Q

requirements

A

secondary rules in lloyds

50
Q

explanatory notes

A

additional guidance in lloyds

51
Q

punishments for lloyds rule breaches

A

fines-bans

52
Q

ways coperates can join the lloyds market

A

new corperate member or name…
- join an existing syndicate
- make anew syndicate
- make new syndicate and its own managing agent

53
Q

proposal to join lloyds must contain

A

the opportunity
the strategy
the structure of the proposed business
target insurance classes and territories
underwriting and management resources
details of their proposed managing agent
sources of capital
value to lloyds

54
Q

solvency margin

A

amount assets exceed liabilites

55
Q

capital adequacy

A

solvency margin with risk considered

56
Q

annual submission to regulators concerning solvency

A
  • revenue account
  • profit and loss account
  • balance sheet (assets and liabilities)
57
Q

fca 3 pillar system for risk analysis

A
  • proactive firm supervision
  • event driven work
  • issues and products
58
Q

wound-up

A

formal cessation of the company

59
Q

run-off

A

prevention of lloyds syndicates from taking further business

60
Q

FOS summary

A

Financial ombudsman service
- deals with disputes between individual consumers or small businesses and financial organizations
- membership is compulsory for all authorised firms and intermediaries
- free, independent, impartial

61
Q

FOS eligible complaintant

A
  • consumer
  • microenterprise < 2M euros
  • charity < £6.5M
  • trustee < £5 M
  • consumer buy-to-let consumer
  • guarantor
  • small business <£6.5 M and < 50 ppl or < £5M
62
Q

time before referring to fos

A

8 weeks for insurer to respond
6 months to accept/reject firm decision

63
Q

FOS monetary awards

A

act/omission before 1 april 2019: (£___K)
195
190
170
160
for referral after:
april 2024
april 2023
april 2022
april 2019

act/omission after 1 april 2019: (£___K)
430
415
375
350
for referral after:
april 2024
april 2023
april 2022
april 2020
april 2019

64
Q

FSCS summary
- under
- covers who?
- covers what?

A

(Financial services compensation scheme)
- under fca
- covers authorsied insurers and intermediaries
- covers claims against that cannot be paid (insolvent or gone out of business)
- covers same entities as fos

65
Q

central fund

A

lloyds fund for contingency cases

66
Q

FSCS protection levels

A

100%
- compulsory insurance
- professional indemnity insurance
- long term insurance (pensions and life)

90%
- claims with no upper limit

0%
- goods in transit
- marine
- aviation
- credit

67
Q

broker networks

A

umbrella organisations thatis authorised and each broker in it is an appointed representative

68
Q

appointed representative

A

individual or company thats appointed an authorised person

principal takes responsibility for the ar activity on their behalf

69
Q

TOBA definition

A

term of business agreements

70
Q

principals obligation in relation to an AR according to FCA

A

have a written agreement (toba)
asses the ar’s suitability
notify fca of appointment
ensure the principal can over see the AR
ensure AR acts within their authority
provide complaints data anually
be clear on when/how to terminate the AR relationship

71
Q

Legislative reform (lloyds) order 2008

A

allows non lloyds brokers access to the lloyds market

72
Q

wholesale broker

A

has contact with the insurer

73
Q

retail broker

A

has direct contact with the client

74
Q

FCA action against broker rule breaches

A

withdraw authorisation
discipline
impose penalties
apply for court injunctions
prosecuting the firm

75
Q

insurance contract

A

an agreement enforceable by law between an insured and an insurer

76
Q

elements of a valid contract

A

offer
acceptance
considerations (gain or forbearance by either party)

other:
intention
possibility to perform
capability to enter into legal relations
consensus ad idem (both parties know what they are agreeing to)
legality
certainty

77
Q

void ab initio

A

void from the start

applies to contracts lacking the elements of a valid contract

78
Q

good faith

A

parties do not try to mislead each other

79
Q

contract certainty

A

concept that both parties must know to what they are agreeing, evidence might can be MRC (market reform contract)

80
Q

features of insurable interest

A

legal right to insure rising from a financial relationship between the insured an the subject matter which is recognised by law

81
Q

subject matter

A

concerns insurable interest
- subject matter of insurance (what is being insured)
- subject matter of contract (relationship between the insured and the subject matter of insurance)

82
Q

insurers insurable interest

A

they have it hence reinsurance

83
Q

insurable interest timing

A

life insurance = must exist at inception but not at time of loss
marine insurance = must exist at the time of the loss but need not at inception
general insurance = must exist at inception and loss

LM1 (8 decks)

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