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Loz Cert CII - LM1 > London Market Legal & Regulatory Environment > Flashcards

London Market Legal & Regulatory Environment Flashcards

1
Q

What year did the FCA & PRA replace the previous regulator?

A

2013.

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2
Q

What is the FCA and what is it responsible for?

A

FCA is an independent regulator.

Responsible for the conduct of business & market issues for ALL firms.

Its overarching objective is to ‘ensure the relevant markets function well’ (for ALL firms).

Essentially: The FCA takes care of consumer protection and market regulation.

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3
Q

What are the 3 operational objectives of the FCA?

A
  1. consumer protection
  2. integrity
  3. competition
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4
Q

What does the FCA’s objective of competition refer to?

A

Wanting firms to innovate & produce new products but not at the cost of exploiting customers, and still genuinely meeting customers needs.

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5
Q

What is the PRA and what is it responsible for?

A

Sits within the Bank of England.

Responsible for the solvency & stability of those institutions that are important to the financial services industry as a whole.

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6
Q

In the Lloyd’s Market who does both the FCA & PRA regulate?

A
  1. the society of Lloyd’s
  2. managing agent’s
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7
Q

In the Lloyd’s Market who does the FCA regulate only?

A
  1. Lloyd’s brokers
  2. member’s agents
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8
Q

How does the FCA mainly encourage businesses to run?

A

Businesses are encouraged to run on the ethos of ‘treating customers fairly’.

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9
Q

What is a fixed portfolio firm?

A

Is a small population of firms who require the highest level of supervisory attention.

They are allocated a named supervisor.

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10
Q

What is a flexible portfolio firm?

A

Is the majority of firms.

These are supervised by communication, engagement, and education.

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11
Q

What can the FCA do if it finds problems?

A
  1. ban products in the retail sector
  2. withdraw misleading financial promotions
  3. fine or prosecute individuals or organisations
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12
Q

Is the FCA responsible for the FOS & FSCS?

A

Yes.

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13
Q

Who does the FCA report to and when?

A

The government and parliament annually.

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14
Q

What are the 11 Principles for Business (PRIN) of both the FCA & PRA?

A
  1. integrity
  2. skill, care, & diligence
  3. management & control
  4. financial prudence
  5. market conduct
  6. customer’s interests
  7. communications with clients
  8. conflicts of interest
  9. customers: relationships of trust
  10. clients’ assets
  11. relations with regulators
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15
Q

What is one of the main ‘principles for business (PRIN)’ that the FCA expects its authorised firms to show?

A

That the ‘fair treatment’ of customers is at the heart of their business model.

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16
Q

How must intermediaries and insurers use their expertise?

A

They must use their relevant expertise in creating appropriate solutions for their clients.

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17
Q

What is Senior Management Arrangements, Systems & Controls (SYSC)?

A

Requires regulated firms to share out its responsibilities between directors and senior management.

SYSC also requires firms to appoint a Money Laundering Reporting Officer (MLRO), who is responsible for anti-money laundering systems and controls within the firm.

(SYSC refers to business principle no. 3: Management and control).

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18
Q

What is ‘whistle blowing’?

A

The public allegation of a firms concealed misconduct, usually from within the same organisation.

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19
Q

What is the technical term for ‘whistle blowing’?

A

‘making a qualified disclosure’.

20
Q

What is the Public Information Disclosure Act 1998 (PIDA)?

A

Concerns ‘whistle blowing’ which is the public allegation of a firms concealed misconduct, usually from within the same organisation.

PIDA states an individual cannot be discriminated against for ‘whistle blowing’ (disclosing concealed info).

PIDA aims to encourage a culture of openness.

21
Q

What is ‘home state financial regulation’?

A

When an insurer is authorised in 1 EU country known as its “home state”, and can thus operate freely in ALL other EU countries.

22
Q

What does it mean if a company works on an ‘establishment basis’?

A

The company has chosen to open offices in another EU state.

23
Q

What does it mean if a company works on a ‘services’ basis?

A

The company has chosen to operate only from its ‘home state’.

24
Q

What does it mean if a company works on an ‘admitted basis’?

A

Insurance companies are granted permission by individual states to write business in the USA.

25
Q

How do companies write business in the USA?

A

On an ‘admitted basis’.

Individual companies must seek permission from individual state regulators themselves.

26
Q

How does the Lloyd’s Market write business in the USA?

A

In the same way as the company market - Both companies and Lloyd’s must be admitted by individual state regulators.

27
Q

What is the main difference between the Lloyd’s and Company Market when writing business overseas?

A

Lloyd’s requests permission from overseas regulators centrally, on the behalf of all of its syndicates.
Vs.
Individual companies have to liaise with overseas regulators themselves.

28
Q

Why would companies or Lloyd’s write on a ‘surplus lines basis’?

A

To avoid the submission of wordings and rates (premium rates) with regulators.

29
Q

Where can Lloyd’s NOT write direct business on an ‘admitted basis’ after 2021? Why? How can they write it instead?

A

Illinois and Kentucky.

Inflexibility due to the need to submit wordings and rates (premium) to regulators.

Instead, they write on a ‘surplus line basis’ in all US locations.

30
Q

Can Lloyd’s write reinsurance in the USA?

A

Lloyd’s is fully authorised to accept reinsurance business in all 50 states with NO limitations.

31
Q

Once granted permission by regulators to write business overseas, what must Lloyd’s & companies do?

A

Report and pay various taxes.

Again, Lloyd’s does this centrally on the behalf of all its syndicates, & companies must do this individually.

32
Q

What is reporting to overseas regulators based on?

A

Premium and claims data.

33
Q

What is the Council of Lloyd’s responsible for?

A

The Council of Lloyd’s is the governing body of the Lloyd’s Market (the society of Lloyd’s).

It is responsible for the management and supervision of the market.

34
Q

How many members is the Council of Lloyd’s made up of?

A

15.

3 working
3 external
9 nominated

35
Q

What are the 2 main types of regulation Lloyd’s issues for the market?

A
  1. byelaws & regulations
  2. requirements

These govern the operation of the marketplace.

36
Q

What are byelaws and regulations?

A

‘Primary rules’ - these set out the fundamental principles.

37
Q

What are ‘requirements’?

A

‘Secondary rules’ - these provide detail of the primary rules.

38
Q

Can Lloyd’s impose penalties on those that breach its rules?

A

Yes.

Can impose fines through to lifetime bans.

39
Q

Who must a ‘new’ insurance company be authorised by to transact insurance in the UK?

A

The PRA.

40
Q

What are 2 of the main initial requirements for setting up a ‘new’ insurance company?

A
  1. solvency
  2. capital adequacy
41
Q

What is a Solvency margin?

A

The amount by which assets must exceed liabilities.

42
Q

What ensures solvency margins are maintained?

A

Regular monitoring.

43
Q

What does ‘winding up’ mean?

A

Winding up is the formal cession of a company if it does not meet regulatory requirements.

Lloyd’s syndicates can be put into ‘run off’.

44
Q

What does the Financial Ombudsman Service (FOS) do?

A

Aims to impartially help resolve disputes between consumers and small businesses/financial organisations.

45
Q

What does the Financial Services Compensation Scheme (FSCS) do?

A

Covers claims for firms that are unable to pay the claims themselves.

Firms have usually become insolvent or gone out of business.

46
Q

What % of claims does the FSCS potentially pay out?

A

For compulsory insurances: protection is 100%.

For non-compulsory insurances: protection is 90%.

47
Q

What is the Lloyd’s ‘Central Fund’?

A

Lloyds’ own central pot of money. Pays claims in case the members that underwrote the risk are not in a position to pay claims.

Loz Cert CII - LM1 (7 decks)

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